First Commonwealth Financial Corporation

Annual Report 2011

A Message to Fellow Shareowners

I was honored by the Board’s trust and confidence in appointing me to the position of President and CEO. You
have my full commitment to earn that trust and work in the best interests of the shareowners. I am also excited by
our company’s prospects. Since joining this organization in 2007, I remain convinced that we have the talent and
the potential to perform at a best-in-class level. However, recent performance has fallen far short of those
expectations.

Credit Was The Story

There are several factors that have led to our muted earnings performance, but none as significant as the credit-
related costs we have incurred. Direct credit costs and other-than-temporary impairment expenses have had a
profound impact on our earnings through this cycle. Even in this regard, 2011 showed signs of promise as loans
in which repayment is questionable or late have decreased dramatically. At the same time, our nonperforming
assets declined in the fourth quarter. So progress continues to be made.

Sticking To Basics

In response to recent economic and regulatory conditions, we have placed an even greater focus on our small
business and middle market client segments, which will serve us well in the long-run. We have leveraged these
business relationships by linking our retail bank with the employee bases of our business clients through our
bank-at-work product line. This program provides financial benefits to the employees of our participating
business clients. In 2011 alone, we added more than 1,300 companies to our bank-at-work program, and
currently more than 20% of our newly opened consumer checking accounts are associated with this program.

We have also seen progress as it relates to new, incremental loan volumes, which have continually risen over the
last five quarters. This culminated in fourth quarter loan growth of $80 million. The strides we have made reflect
the fact that we are becoming a fundamentally more competitive community bank. While this is encouraging, it
does not mitigate our disappointment in our financial results.

Strategic Priorities

That disappointment is precisely why our efforts to put credit uncertainty behind us will remain a priority in
2012. I am confident that the strong credit culture and infrastructure that have been built over the last three years
will create a sustainable competitive advantage.

2012 will also be a time of thoughtful and prudent management of our strong capital position. Our objective is to
ensure stability and an appropriate return for our shareholders as credit heals and earnings improve. We believe
the return of earnings will be driven by a value proposition that emphasizes a community banking approach to
service alongside the comprehensive solutions and advice of a larger financial institution.

The Customer Experience

It is this approach to doing business that will enable us to deliver a consistently superior customer experience.
We are pleased with the trajectory of our objective customer satisfaction and brand perception measures over the
course of the last two years.

Ultimately, we seek to become the first choice among community banks for business clients and their employees.
These efforts have been further reinforced by the increased opportunities generated by Marcellus Shale activity
throughout Pennsylvania.

Operating Excellence

In the midst of all these efforts and activities, we continue to enthusiastically migrate to a culture of operating
excellence. This is where the expectations of best-in-class performance are critical. We will diligently assess our
accomplishments and our productivity against objective measures. From core asset and low-cost deposit growth
to efficiency and net interest margin, we will hold ourselves to a higher standard.

It’s About The People

My confidence in our ability to deliver despite greater demands stems from the caliber of talent we have at First
Commonwealth. Our community banking team operates from the basic tenet that the customer is at the heart of
every action we take and every decision we make. With that as our guiding principle, we are establishing greater
cohesion and integration among our lines of business and our business units. The results will be seen in a more
holistic approach that provides a full complement of financial solutions to our clients’ needs.

For these reasons, I believe 2012 will be an important and powerful chapter in the history of First
Commonwealth. I look forward to being part of it as we share in the success that our efforts create.

T. Michael Price
President and Chief Executive Officer
First Commonwealth Financial Corporation

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011

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
(State or other jurisdiction of incorporation or
organization)

22 NORTH SIXTH STREET INDIANA, PA
(Address of principal executive offices)

25-1428528
(I.R.S. Employer Identification No.)

15701
(Zip Code)

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

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

Title of each class
COMMON STOCK, $1 PAR VALUE

Name of each exchange on which registered
NEW YORK STOCK EXCHANGE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ‘ No È
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘ No È
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the
Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this form 10-K. ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted 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 and post such files). Yes È 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 ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È
The aggregate market value of the voting and non-voting common stock, par value $1 per share, held by non-affiliates of the
registrant (based upon the closing sale price on June 30, 2011) was approximately $594,685,984.

Accelerated filer È Non-accelerated filer ‘

Smaller reporting company ‘

The number of shares outstanding of the registrant’s common stock, $1.00 Par Value as of March 1, 2012, was 105,016,994.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the annual
meeting of shareholders to be held April 24, 2012 are incorporated by reference into Part III.

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-K
INDEX

PART I

ITEM 1.

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 2.

Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 3.

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Executive Officers of First Commonwealth Financial Corporation . . . . . . . . . . . . . . . . .

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchase of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 6.

Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . .

ITEM 8.

Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . .

ITEM 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

ITEM 15. Exhibits, Financial Statements and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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FORWARD-LOOKING STATEMENTS

Certain statements contained in this report that are not historical facts may constitute “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements include, among others, statements regarding
our strategy, evaluations of our asset quality, future interest rate trends and liquidity, prospects for growth in
assets and prospects for future operating results. Forward-looking statements can generally be identified by the
use of words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or words of similar meaning,
or future or conditional verbs such as “will,” “would,” “should,” “could” or “may.” Forward-looking statements
are based on assumptions of management and are only expectations of future results. You should not place undue
reliance on our forward-looking statements. Our actual results could differ materially from those projected in the
forward-looking statements as a result of, among others, the risk factors described in Item 1A of this report.
Forward-looking statements speak only as of the date on which they are made. We do not undertake any
obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the
forward-looking statements are made.

ITEM 1. Business

Overview

First Commonwealth Financial Corporation (“First Commonwealth” or “we”) is a financial holding company that
is headquartered in Indiana, Pennsylvania. We provide a diversified array of consumer and commercial banking
services through our bank subsidiary, First Commonwealth Bank (“FCB” or the “Bank”). We also provide trust
and wealth management services and offer insurance products through FCB and our other operating subsidiaries.
At December 31, 2011, we had total assets of $5.8 billion, total loans of $4.1 billion, total deposits of $4.5 billion
and shareholders’ equity of $758.5 million. Our principal executive office is located at 22 North Sixth Street,
Indiana, Pennsylvania 15701, and our telephone number is (724) 349-7220.

FCB is a Pennsylvania bank and trust company. At December 31, 2011, the Bank operated 112 community
banking offices throughout western and central Pennsylvania and two loan production offices in downtown
Pittsburgh and State College, Pennsylvania. The largest concentration of our branch offices is located within the
greater Pittsburgh metropolitan area in Allegheny, Butler, Washington and Westmoreland counties, while our
remaining offices are located in smaller cities, such as Altoona, Johnstown, and Indiana, Pennsylvania, and in
towns and villages throughout predominantly rural counties. The Bank also operates a network of 121 automated
teller machines, or ATMs, at various branch offices and offsite locations. All of our ATMs are part of the STAR
and MasterCard/Cirrus networks, both of which operate nationwide. The Bank is a member of the Allpoint ATM
network which allows surcharge-free access to over 43,000 ATMs. The Bank is also a member of the 31-bank
“Freedom ATM Alliance,” which affords cardholders surcharge-free access to a network of over 700 ATMs in
over 50 counties in Pennsylvania, Maryland, New York, West Virginia and Ohio.

Historical and Recent Developments

FCB began in 1934 as First National Bank of Indiana with initial capitalization of $255 thousand. First National
Bank of Indiana changed its name to National Bank of the Commonwealth in 1971 and became a subsidiary of
First Commonwealth in 1983.

Since the formation of the holding company in 1983, we have grown steadily through the acquisition of smaller
banks and thrifts in our market area, including Deposit Bank in 1984, Dale National Bank and First National
Bank of Leechburg in 1985, Citizens National Bank of Windber in 1986, Peoples Bank and Trust Company in
1990, Central Bank in 1992, Peoples Bank of Western Pennsylvania in 1993, Unitas National Bank and Reliable
Savings Bank in 1994. In 1995, we merged all of our banking subsidiaries (other than Reliable Savings Bank)
into Deposit Bank and renamed the resulting institution “First Commonwealth Bank.” We then merged Reliable
Savings Bank into FCB in 1997. We acquired Southwest Bank in 1998 and merged it into FCB in 2002.

In the fourth quarter of 2003, we acquired Pittsburgh Financial Corp., the holding company for Pittsburgh
Savings Bank (dba BankPittsburgh), for a total cost of approximately $28.6 million. Pittsburgh Financial had
total assets of approximately $376.4 million, with 7 branch offices and one loan production office in Allegheny
and Butler counties of Pennsylvania. In the second quarter of 2004, we acquired GA Financial, Inc., the holding
company for Great American Federal, for a total cost of approximately $176.7 million. GA Financial, Inc. had
total assets of approximately $890.3 million, with 12 branch offices located in Allegheny County. In the third
quarter of 2006, we acquired Laurel Capital Group, Inc. (“Laurel”), the holding company for Laurel Savings
Bank, for a total cost of approximately $56.1 million. Laurel had total assets of approximately $314.3 million,
with 8 branch offices located in Allegheny and Butler Counties.

In recent years, we have primarily focused on organic growth, improving the reach of our franchise and the
breadth of our product offering. As part of this strategy, we have opened fourteen de novo branches since 2005,
all of which are in the greater Pittsburgh area. As a result of our acquisition and de novo strategy, FCB operates
63 branches in the Pittsburgh metropolitan statistical area and currently ranks seventh in deposit market share.

4

ITEM 1. Business (Continued)

Competition

The banking and financial services industry is extremely competitive in our market area. We face vigorous
competition for customers, loans and deposits from many companies, including commercial banks, savings and
loan associations, finance companies, credit unions, trust companies, mortgage companies, money market mutual
funds, insurance companies, and brokerage and investment firms. Many of these competitors are significantly
larger than us, have greater resources, lending limits and larger branch systems and offer a wider array of
financial services than us. In addition, some of these competitors, such as credit unions, are subject to a lesser
degree of regulation than that imposed on us.

Employees

At December 31, 2011, First Commonwealth and its subsidiaries employed 1,355 full-time employees and 151
part-time employees.

Supervision and Regulation

The following discussion sets forth the material elements of the regulatory framework applicable to financial
holding companies and their subsidiaries and provides certain specific information relevant to First
Commonwealth and its subsidiaries. The regulatory framework is intended primarily for the protection of
depositors, other customers and the federal deposit insurance fund and not for the protection of security holders.
The rules governing the regulation of financial institutions and their holding companies are very detailed and
technical. Accordingly, the following discussion is general in nature and is not intended to be complete or to
describe all the laws and regulations that apply to First Commonwealth and its subsidiaries. A change in
applicable statutes, regulations or regulatory policy may have a material adverse effect on our business, financial
condition or results of operations.

Bank Holding Company Regulation

First Commonwealth is registered as a financial holding company under the Bank Holding Company Act of
1956, as amended (“BHC Act”), and is subject to supervision and regulation by the Board of Governors of the
Federal Reserve System (“FRB”).

Acquisitions. Under the BHC Act, First Commonwealth is required to obtain the prior approval of the FRB
before it can merge or consolidate with any other bank holding company or acquire all or substantially all of the
assets of any bank that is not already majority owned by it or acquire direct or indirect ownership, or control of,
any voting shares of any bank that is not already majority owned by it, if after such acquisition it would directly
or indirectly own or control more than 5% of the voting shares of such bank. Satisfactory financial condition,
particularly with regard to capital adequacy, and satisfactory Community Reinvestment Act (“CRA”) ratings are
generally prerequisites to obtaining federal regulatory approval to make acquisitions and open branch offices.

Non-Banking Activities. First Commonwealth is generally prohibited under the BHC Act from engaging in, or
acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company engaged
in non-banking activities unless the FRB, by order or regulation, has found such activities to be so closely related
to banking or managing or controlling banks as to be a proper incident thereto. In making this determination, the
FRB considers whether the performance of these activities by a bank holding company can reasonably be
expected to produce benefits to the public that outweigh the possible adverse effects.

Reporting. Under the BHC Act, First Commonwealth is subject to examination by the FRB and is required to file
periodic reports and other information of its operations with the FRB. In addition, under the Pennsylvania

5

ITEM 1. Business (Continued)

Supervision and Regulation (Continued)

Bank Holding Company Regulation (Continued)

Banking Code of 1965, the Pennsylvania Department of Banking has the authority to examine the books, records
and affairs of any Pennsylvania bank holding company or to require any documentation deemed necessary to
ensure compliance with the Pennsylvania Banking Code.

Source of Strength Doctrine. FRB policy has historically required bank holding companies to act as a source of
financial and managerial strength to their subsidiary banks. The Dodd-Frank Wall Street Reform and Consumer
Protection Act (the “Dodd-Frank Act”) codifies this policy as a statutory requirement. Under this requirement,
First Commonwealth is expected to commit resources to support FCB, including at times when First
Commonwealth may not be in a financial position to provide such resources. Any capital loans by a bank holding
company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary banks. In the event of a bank holding company’s bankruptcy, any commitment
by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank
will be assumed by the bankruptcy trustee and entitled to priority of payment.

Affiliate Transactions. There are various legal restrictions on the extent to which First Commonwealth and its
non-bank subsidiaries can borrow or otherwise obtain credit from its banking subsidiaries. In general, these
restrictions require that any such extensions of credit must be secured by designated amounts of specified
collateral and are limited, as to any one of First Commonwealth or its non-bank subsidiaries, to ten percent of the
lending bank’s capital stock and surplus, and as to First Commonwealth and all such non-bank subsidiaries in the
aggregate, to 20 percent of such lending bank’s capital stock and surplus. Further, a bank holding company and
its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.

SEC Regulations. First Commonwealth is also under the jurisdiction of the Securities and Exchange Commission
(“SEC”) and various state securities commissions for matters relating to the offer and sale of its securities and is
subject to the SEC rules and regulations relating to periodic reporting, proxy solicitation and insider trading.

Bank Regulations

FCB is a state bank chartered under the Pennsylvania Banking Code and is not a member of the FRB. As such,
FCB is subject to the supervision of, and is regularly examined by, both the Federal Deposit Insurance
Corporation (“FDIC”) and the Pennsylvania Department of Banking and is required to furnish quarterly reports
to both agencies. The approval of the Pennsylvania Department of Banking and FDIC is also required for FCB to
establish additional branch offices or merge with or acquire another banking institution.

Restrictions on Dividends. The Pennsylvania Banking Code states, in part, that dividends may be declared and
paid only out of accumulated net earnings and may not be declared or paid unless surplus is at least equal to
capital. Dividends may not reduce surplus without the prior consent of the Pennsylvania Department of Banking.
FCB has not reduced its surplus through the payment of dividends.

The FDIC also prohibits the declaration or payout of dividends at a time when FCB is in default in payment of
any assessment due the FDIC. In addition, supervisory guidance issued by the FRB requires, among other things,
that a company must consult with the FRB in advance of paying a dividend that exceeds earnings for the quarter
for which the dividend is paid or that could result in a material adverse change to the company’s capital structure.
The guidance also states that a company should, as a general matter, eliminate, defer or severely limit its
dividend if (1) the company’s net income for the past four quarters, net of dividends paid during that period, is

6

ITEM 1. Business (Continued)

Supervision and Regulation (Continued)

Bank Regulations (Continued)

not sufficient to fully fund the dividend; (2) the company’s prospective rate of earnings retention is not consistent
with the company’s capital needs and current and prospective financial condition; or (3) the company will not
meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

Community Reinvestment. Under the Community Reinvestment Act, or CRA, a bank has a continuing and
affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire
community, including low and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the
types of products and services that it believes are best suited to its particular community, consistent with the
CRA. The CRA requires the applicable regulatory agency to assess an institution’s record of meeting the credit
needs of its community. The CRA requires public disclosure of an institution’s CRA rating and requires that the
applicable regulatory agency provide a written evaluation of an institution’s CRA performance utilizing a four-
tiered descriptive rating system. An institution’s CRA rating is considered in determining whether to grant
charters, branches and other deposit facilities, relocations, mergers, consolidations and acquisitions. Performance
less than satisfactory may be the basis for denying an application. For its most recent examination, FCB received
a “satisfactory” rating.

Consumer Protection Laws. The operations of FCB are also subject to numerous federal, state and local
consumer protection laws and regulations including the Truth in Lending Act, Truth in Savings Act, Equal Credit
Opportunity Act, Fair Housing Act, Real Estate Settlement Procedures Act and Home Mortgage Disclosure Act.
Among other things, these acts:

•

•

•

•

•

•

•

require banks to disclose credit terms in meaningful and consistent ways;

prohibit discrimination against an applicant in any consumer or business credit transaction;

prohibit discrimination in housing-related lending activities;

require banks to collect and report applicant and borrower data regarding loans for home purchases or
improvement projects;

require lenders to provide borrowers with information regarding the nature and cost of real estate
settlements;

prohibit certain lending practices and limit escrow account amounts with respect to real estate
transactions; and

prescribe possible penalties for violations of the requirements of consumer protection statutes and
regulations.

Deposit Insurance. Deposits of FCB are insured up to applicable limits by the FDIC and are subject to deposit
insurance assessments to maintain the Deposit Insurance Fund (“DIF”). On April 1, 2011, the deposit insurance
assessment base changed from total domestic deposits to average total assets minus average tangible equity,
pursuant to a rule issued by the FDIC as required by the Dodd-Frank Act. The insurance assessments are based
upon a matrix that takes into account a bank’s capital level and supervisory rating. The FDIC may terminate
deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe
or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC.

7

ITEM 1. Business (Continued)

Supervision and Regulation (Continued)

Bank Regulations (Continued)

In November 2009, the FDIC issued a rule that required all insured depository institutions, with limited
exceptions, to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of
2010, 2011 and 2012. As of December 31, 2011, $13.9 million in pre-paid deposit insurance is included “Other
assets” in the accompanying Statements of Financial Condition.

In October 2010, the FDIC adopted a new DIF restoration plan to ensure that the fund reserve ratio reaches
1.35% by September 30, 2020, as required by the Dodd-Frank Act. Under the new restoration plan, the FDIC will
maintain the current schedule of assessment rates for all depository institutions. At least semi-annually, the FDIC
will update its loss and income projections for the fund and, if needed, will increase or decrease assessment rates,
following notice-and-comment rulemaking if required.

In November 2010, the FDIC issued a final rule to implement provisions of the Dodd-Frank Act that provide for
temporary unlimited coverage for noninterest-bearing transaction accounts. The separate coverage for
noninterest-bearing transaction accounts became effective on December 31, 2010 and terminates on
December 31, 2012.

Capital Requirements

As a bank holding company, we are subject to consolidated regulatory capital requirements administered by the
FRB. FCB is subject to similar capital requirements administered by the FDIC and the Pennsylvania Department
of Banking. The federal regulatory authorities’ risk-based capital guidelines are based upon the 1988 capital
accord (“Basel I”) of the Basel Committee on Banking Supervision (the “Basel Committee”). The Basel
Committee is a committee of central banks and bank supervisors/regulators from the major industrialized
countries that develops broad policy guidelines for use by each country’s supervisors in determining the
supervisory policies they apply. The requirements are intended to ensure that banking organizations have
adequate capital given the risk levels of assets and off-balance sheet financial instruments. Under the
requirements, banking organizations are required to maintain minimum ratios for Tier 1 capital and total capital
to risk-weighted assets (including certain off-balance sheet items, such as letters of credit). For purposes of
calculating the ratios, a banking organization’s assets and some of its specified off-balance sheet commitments
and obligations are assigned to various risk categories.

A depository institution’s or holding company’s capital, in turn, is classified in one of three tiers, depending on
type:

•

•

Core Capital (Tier 1). Tier 1 capital includes common equity, retained earnings, qualifying
non-cumulative perpetual preferred stock, a limited amount of qualifying cumulative perpetual stock at
the holding company level, minority interests in equity accounts of consolidated subsidiaries, and
qualifying trust preferred securities, less goodwill, most intangible assets and certain other assets.

Supplementary Capital (Tier 2). Tier 2 capital includes, among other things, perpetual preferred stock
and trust preferred securities not meeting the Tier 1 definition, qualifying mandatory convertible debt
securities, qualifying subordinated debt, and allowances for possible loan and lease losses, subject to
limitations.

• Market Risk Capital (Tier 3). Tier 3 capital includes qualifying unsecured subordinated debt.

First Commonwealth, like other bank holding companies, currently is required to maintain Tier 1 capital and
“total capital” (the sum of Tier 1 and Tier 2 capital) equal to at least 4.0% and 8.0%, respectively, of its total risk-
weighted assets (including various off-balance sheet items, such as letters of credit). FCB, like other depository

8

ITEM 1. Business (Continued)

Supervision and Regulation (Continued)

Capital Requirements (Continued)

institutions, is required to maintain similar capital levels under capital adequacy guidelines. In addition, for a
depository institution to be considered “well capitalized” under the regulatory framework for prompt corrective
action, its Tier 1 and total capital ratios must be at least 6.0% and 10.0% on a risk-adjusted basis, respectively.

Bank holding companies and banks are also required to comply with minimum leverage ratio requirements. The
leverage ratio is the ratio of a banking organization’s Tier 1 capital to its total adjusted quarterly average assets
(as defined for regulatory purposes). The minimum leverage ratio is 3.0% for bank holding companies and
depository institutions that either have the highest supervisory rating or have implemented the appropriate federal
regulatory authority’s risk-adjusted measure for market risk. All other bank holding companies and depository
institutions are required to maintain a minimum leverage ratio of 4.0%, unless a different minimum is specified
by an appropriate regulatory authority. In addition, for a depository institution to be considered “well capitalized”
under the regulatory framework for prompt corrective action, its leverage ratio must be at least 5.0%.

As of December 31, 2011, FCB was a “well-capitalized” bank as defined by the FDIC. See Note 28 “Regulatory
Restrictions and Capital Adequacy” of Notes to the Consolidated Financial Statements, contained in Item 8, for a
table that provides a comparison of First Commonwealth’s and FCB’s risk-based capital ratios and the leverage
ratio to minimum regulatory requirements.

In December 2010, the Basel Committee released its final framework for strengthening international capital and
liquidity regulation, now officially identified by the Basel Committee as “Basel III.” Basel III, when
implemented by the U.S. banking agencies and fully phased-in, would require bank holding companies and their
bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity.

The Basel III final capital framework, among other things, (i) introduces as a new capital measure “Common
Equity Tier 1” (“CET1”), (ii) specifies that Tier 1 capital consists of CET1 and “Additional Tier 1 capital”
instruments meeting specified requirements, (iii) defines CET1 narrowly by requiring that most adjustments to
regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expands the
scope of the adjustments as compared to existing regulations. When fully phased in on January 1, 2019, Basel III
requires banks to maintain (i) as a newly adopted international standard, a minimum ratio of CET1 to risk-
weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET1
ratio as that buffer is phased in, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at
least 7%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital
conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively
resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of Total
(that is, Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer
(which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total
capital ratio of 10.5% upon full implementation) and (iv) as a newly adopted international standard, a minimum
leverage ratio of 3%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance
sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter).

Basel III also provides for a “countercyclical capital buffer,” generally to be imposed when national regulators
determine that excess aggregate credit growth becomes associated with a buildup of systemic risk, that would be
a CET1 add-on to the capital conservation buffer in the range of 0% to 2.5% when fully implemented (potentially
resulting in total buffers of between 2.5% and 5%). This buffer is designed to absorb losses during periods of
economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below
the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer,
when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the
amount of the shortfall.

9

ITEM 1. Business (Continued)

Supervision and Regulation (Continued)

Capital Requirements (Continued)

The implementation of the Basel III final framework will commence January 1, 2013. On that date, banking
institutions will be required to meet the following minimum capital ratios:

•

•

•

3.5% CET1 to risk-weighted assets;

4.5% Tier 1 capital to risk-weighted assets; and

8.0% Total capital to risk-weighted assets.

The Basel III final framework provides for a number of new deductions from and adjustments to CET1. These
include, for example, the requirement that mortgage servicing rights, deferred tax assets dependent upon future
taxable income and significant investments in non-consolidated financial entities be deducted from CET1 to the
extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of
CET1.

Implementation of the deductions and other adjustments to CET1 will begin on January 1, 2014 and will be
phased-in over a five-year period (20% per year). The implementation of the capital conservation buffer will
begin on January 1, 2016 at 0.625% and be phased in over a four-year period (increasing by that amount on each
subsequent January 1, until it reaches 2.5% on January 1, 2019). Management believes, as of December 31, 2011,
that First Commonwealth Financial Corporation and First Commonwealth Bank would meet all capital adequacy
requirements under the Basel III capital framework on a fully phased-in basis if such requirements were currently
effective.

The timing for the federal banking agencies’ publication of proposed rules to implement the Basel III capital
framework and the implementation schedule is uncertain, but the federal banking agencies have indicated
informally that rules implementing the Basel III capital framework will be published for comment during the first
half of 2012. The rules ultimately adopted and made applicable to First Commonwealth may be different from
the Basel III final framework as published in December 2010. Requirements to maintain higher levels of capital
or to maintain higher levels of liquid assets could adversely impact our net income and return on equity.

Liquidity Requirements

Historically, regulation and monitoring of bank and bank holding company liquidity has been addressed as a
supervisory matter, without required formulaic measures. The Basel III final framework requires banks and bank
holding companies to measure their liquidity against specific liquidity tests that, although similar in some
respects to liquidity measures historically applied by banks and regulators for management and supervisory
purposes, going forward will be required by regulation. One test, referred to as the liquidity coverage ratio
(“LCR”), is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality
liquid assets equal to the entity’s expected net cash outflow for a 30-day time horizon (or, if greater, 25% of its
expected total cash outflow) under an acute liquidity stress scenario. The other, referred to as the net stable
funding ratio (“NSFR”), is designed to promote more medium- and long-term funding of the assets and activities
of banking entities over a one-year time horizon. These requirements will incent banking entities to increase their
holdings of U.S. Treasury securities and other sovereign debt as a component of assets and increase the use of
long-term debt as a funding source. The LCR would be implemented subject to an observation period beginning
in 2011, but would not be introduced as a requirement until January 1, 2015, and the NSFR would not be
introduced as a requirement until January 1, 2018. These new standards are subject to further rulemaking and
their terms may change before implementation.

10

ITEM 1. Business (Continued)

Supervision and Regulation (Continued)

Anti-Money Laundering and the USA Patriot Act

A major focus of governmental policy on financial institutions in recent years has been aimed at combating
money laundering and terrorist financing. The USA PATRIOT Act of 2001 (the “USA Patriot Act”) substantially
broadened the scope of United States anti-money laundering laws and regulations by imposing significant new
compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial
jurisdiction of the United States. The United States Treasury Department has issued and, in some cases, proposed
a number of regulations that apply various requirements of the USA Patriot Act to financial institutions such as
FCB. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures
and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of
their customers. Certain of those regulations impose specific due diligence requirements on financial institutions
that maintain correspondent or private banking relationships with non-U.S. financial institutions or persons.
Failure of a financial institution to maintain and implement adequate programs to combat money laundering and
terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and
reputational consequences for the institution.

Dodd-Frank Wall Street Reform and Consumer Protection Act

The Act was signed into law on July 21, 2010. Generally, the Act is effective the day after it was signed into law,
but different effective dates apply to specific provisions of the Act. The Act, among other things:

•

•

•

•

•

•

•

•

•

Applies the same leverage and risk-based capital requirements that apply to insured depository
institutions to most bank holding companies;

Directs the FRB to issue rules which are expected to limit debit card interchange fees;

Changes the assessment base for federal deposit insurance from the amount of insured deposits to
consolidated assets less tangible capital, eliminates the ceiling on the size of the Deposit Insurance
Fund; and increases the minimum reserve ratio for the Deposit Insurance Fund from 1.15% to 1.35%;

Created the Consumer Financial Protection Bureau that has rulemaking authority for a wide range of
consumer protection laws that will apply to all banks and has broad powers to supervise and enforce
consumer protection laws for depository institutions with assets of $10 billion or more;

Provides for new disclosure and other requirements relating to executive compensation and corporate
governance;

Provides for mortgage reform addressing a customer’s ability to repay, restricts variable-rate lending
by requiring the ability to repay to be determined for variable-rate loans by using the maximum rate
that will apply during the first five years of a variable-rate loan term, and makes more loans subject to
requirements for higher-cost loans, new disclosures and certain other restrictions;

Created a financial stability oversight council that has recommended to the FRB enhanced prudential
standards for capital, leverage, liquidity, risk management and other requirements for financial
institutions with consolidated assets of $50 billion or more;

Permanently increases the deposit insurance coverage to $250 thousand and allows depository
institutions to pay interest on business checking accounts starting July 2011; and

Requires publicly-traded bank holding companies with assets of $10 billion or more to establish a risk
committee of the Board of Directors responsible for enterprise-wide risk management practices.

The implications of the Dodd-Frank Act for First Commonwealth’s businesses will depend to a large extent on
the manner in which rules adopted pursuant to the Dodd-Frank Act are implemented by the primary U.S.

11

ITEM 1. Business (Continued)

Supervision and Regulation (Continued)

Dodd-Frank Wall Street Reform and Consumer Protection Act (Continued)

financial regulatory agencies as well as potential changes in market practices and structures in response to the
requirements of the Dodd-Frank Act. We continue to analyze the impact of rules adopted under Dodd-Frank on
our businesses. However, the full impact will not be known until the rules, and other regulatory initiatives that
overlap with the rules, are finalized and their combined impacts can be understood.

Availability of Financial Information

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may
read and copy any document we file at the Securities and Exchange Commission’s Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. Our SEC filings are also available to the public on the SEC website
at www.sec.gov and on our website at www.fcbanking.com.

We also make available on our website, www.fcbanking.com, and in print to any shareholder who requests them,
our Corporate Governance Guidelines, the charters for our Audit, Risk, Compensation and Human Resources,
and Governance Committees, and the Code of Conduct and Ethics that applies to all of our directors, officers and
employees.

Our Chief Executive Officer has certified to the New York Stock Exchange (“NYSE”) that, as of the date of the
certification, he was not aware of any violation by First Commonwealth of NYSE’s corporate governance listing
standards. In addition, our Chief Executive Officer and Chief Financial Officer have made certain certifications
concerning the information contained in this report pursuant to Section 302 of the Sarbanes-Oxley Act. The
Section 302 certifications appear as Exhibits 31.1 and 31.2 to this annual report on Form 10-K.

12

ITEM 1A. Risk Factors

As a financial services company, we are subject to a number of risks, many of which are outside of our control.
These risks include, but are not limited to:

Further declines in real estate values could adversely affect our earnings and financial condition.

As of December 31, 2011, approximately 61% of our loans were secured by real estate. These loans consist of
residential real estate loans (approximately 28% of total loans), commercial real estate loans (approximately 31%
of total loans) and real estate construction loans (approximately 2% of total loans). Since the beginning of the
economic recession in 2008, declines in real estate values and weak demand for new construction, particularly
outside of our core Pennsylvania market, have caused deterioration in our loan portfolio and adversely impacted
our financial condition and results of operations. Additional declines in real estate values, both within and outside
of Pennsylvania, could adversely affect the value of the collateral for these loans, the ability of borrowers to
make timely repayment of these loans and our ability to recoup the value of the collateral upon foreclosure,
further impacting our earnings and financial condition.

We are subject to extensive government regulation and supervision.

Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the
banking system as a whole, not security holders. These regulations affect our lending practices, capital structure,
investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies
continually review banking laws, regulations and policies for possible changes. The Dodd-Frank Act, enacted in
July 2010, instituted major changes to the banking and financial institutions regulatory regimes in light of the
recent performance of and government intervention in the financial services sector. Other changes to statutes,
regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations
or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional
costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to
offer competing financial services and products, among other things. Failure to comply with laws, regulations or
policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which
could have a material adverse effect on our business, financial condition and results of operations. See
“Supervision and Regulation” included in Item 1. Business for a more detailed description of the Dodd-Frank Act
and other regulatory requirements applicable to First Commonwealth.

We have a significant deferred tax asset and cannot assure it will be fully realized.

We had net deferred tax assets of $66.3 million as of December 31, 2011. We did not establish a valuation
allowance against our federal net deferred tax assets as of December 31, 2011 as we believe that it is more likely
than not that all of these assets will be realized. In evaluating the need for a valuation allowance, we estimated
future taxable income based on management approved forecasts. This process required significant judgment by
management about matters that are by nature uncertain. If future events differ from our current forecasts, we may
need to establish a valuation allowance, which could have a material adverse effect on our results of operations
and financial condition.

Our allowance for credit losses may be insufficient.

All borrowers carry the potential to default and our remedies to recover may not fully satisfy money previously
loaned. We maintain an allowance for credit losses, which is a reserve established through a provision for credit
losses charged to expense, which represents management’s best estimate of probable credit losses that have been
incurred within the existing portfolio of loans. The allowance, in the judgment of management, is adequate to
reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance for credit
losses reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss

13

ITEM 1A. Risk Factors (Continued)

experience; current loan portfolio quality; present economic conditions; and unidentified losses in the current
loan portfolio. The determination of the appropriate level of the allowance for credit losses inherently involves a
high degree of subjectivity and requires us to make significant estimates of current credit risks using existing
qualitative and quantitative information, all of which may undergo material changes. Changes in economic
conditions affecting borrowers, new information regarding existing loans, identification of additional problem
loans and other factors, both within and outside of our control, may require an increase in the allowance for
credit losses. In addition, bank regulatory agencies periodically review our allowance for credit losses and may
require an increase in the provision for credit losses or the recognition of additional loan charge-offs, based on
judgments different than those of management. An increase in the allowance for credit losses results in a
decrease in net income, and possibly risk-based capital, and may have a material adverse effect on our financial
condition and results of operations.

We could suffer large losses due to the large size of certain loans.

As of December 31, 2011, we had 13 commercial loans with commitments greater than $25.0 million with an
aggregate amount of such commitments equal to $440.2 million. If one or more of these large loans deteriorates
or if the borrowers default, we could suffer losses which would have a significant impact on our earnings and
financial condition.

We must evaluate whether any portion of our recorded goodwill is impaired. Impairment testing may
result in a material, non-cash write-down of our goodwill assets and could have a material adverse impact
on our results of operations.

At December 31, 2011, goodwill represented approximately 3% of our total assets. We have recorded goodwill
because we paid more for some of our businesses than the fair market value of the tangible and separately
measurable intangible net assets of those businesses. We test our goodwill and other intangible assets with
indefinite lives for impairment at least annually (or whenever events occur which may indicate possible
impairment). Goodwill impairment is determined by comparing the fair value of a reporting unit to its carrying
amount, including goodwill. If the fair value exceeds the carrying amount, goodwill of the reporting unit is not
considered impaired. If the fair value of the reporting unit is less than the carrying amount, goodwill is
considered impaired. Determining the fair value of our company requires a high degree of subjective
management assumptions. Any changes in key assumptions about our business and its prospects, changes in
market conditions or other externalities, for impairment testing purposes could result in a non-cash impairment
charge and such a charge could have a material adverse effect on our consolidated results of operations. The
challenges of the current economic environment may adversely affect our earnings, the fair value of our assets
and liabilities and our stock price, all of which may increase the risk of goodwill impairment.

Our earnings are significantly affected by general business and economic conditions.

Our operations and profitability are impacted by general business and economic conditions in the United States
and abroad. These conditions include short-term and long-term interest rates, inflation, money supply, political
issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in
industry and finance and the strength of the United States economy, all of which are beyond our control. A
deterioration in economic conditions could result in an increase in loan delinquencies and nonperforming assets,
decreases in loan collateral values and a decrease in demand for our products and services, among other things,
any of which could have a material adverse impact on our financial condition and results of operations.

14

ITEM 1A. Risk Factors (Continued)

We have significant exposure to a downturn in the financial services industry due to our investments in
trust preferred securities.

As of December 31, 2011, we had single issuer trust preferred securities and trust preferred collateralized debt
obligations with an aggregate book value of $66.6 million and an unrealized loss of approximately $32.3 million.
These securities were issued by banks, bank holding companies and other financial services providers.
Depending on the severe economic recession and its impact on the financial services industry, we may be
required to record additional impairment charges on other investment securities if they suffer a decline in value
that is considered other-than-temporary. If the credit quality of the securities in our investment portfolio
deteriorates, we may also experience a loss in interest income from the suspension of either interest or dividend
payments. Numerous factors, including lack of liquidity for resales of certain investment securities, absence of
reliable pricing information for investment securities, adverse changes in business climate or adverse actions by
regulators could have a negative effect on our investment portfolio in future periods. If an impairment charge is
significant enough it could affect the ability of FCB to upstream dividends to us, which could have a material
adverse effect on our liquidity and our ability to pay dividends to shareholders and could also negatively impact
our regulatory capital ratios and result in us not being classified as “well-capitalized” for regulatory purposes.

First Commonwealth relies on dividends from its subsidiaries for most of its revenues.

First Commonwealth is a separate and distinct legal entity from its subsidiaries. It receives substantially all of its
revenues from dividends from its subsidiaries. These dividends are the principal source of funds to pay dividends
on First Commonwealth’s common stock and interest and principal on First Commonwealth’s debt. Various
federal and/or state laws and regulations limit the amount of dividends that FCB and certain non-bank
subsidiaries may pay to First Commonwealth. In the event FCB is unable to pay dividends to First
Commonwealth, First Commonwealth may not be able to service debt, pay obligations or pay dividends on its
common stock. The inability to receive dividends from FCB could have a material adverse effect on First
Commonwealth’s business, financial condition and results of operations.

Changes in interest rates could negatively impact our financial condition and results of operations.

Our results of operations depend substantially on net interest income, which is the difference between interest
earned on interest-earning assets (such as investments and loans) and interest paid on interest-bearing liabilities
(such as deposits and borrowings). Interest rates are highly sensitive to many factors, including governmental
monetary policies and domestic and international economic and political conditions. Conditions such as inflation,
recession, unemployment, money supply, and other factors beyond our control may also affect interest rates. If
our interest-earning assets mature or reprice more quickly than interest-bearing liabilities in a declining interest
rate environment, net interest income could be adversely impacted. Likewise, if interest-bearing liabilities mature
or reprice more quickly than interest-earnings assets in a rising interest rate environment, net interest income
could be adversely impacted.

Changes in interest rates also can affect the value of loans and other assets. An increase in interest rates that
adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in
nonperforming assets and a reduction of income recognized, which could have a material adverse effect on our
results of operations and cash flows.

Competition from other financial institutions in originating loans, attracting deposits and providing
various financial services may adversely affect our profitability.

We face substantial competition in originating loans and attracting deposits. This competition comes principally
from other banks, savings institutions, mortgage banking companies and credit unions, as well as institutions
offering uninsured investment alternatives, including money market funds. Many of our competitors enjoy

15

ITEM 1A. Risk Factors (Continued)

advantages, including greater financial resources and higher lending limits, better brand recognition, a wider
geographic presence, more accessible branch office locations, the ability to offer a wider array of services or
more favorable pricing alternatives, as well as lower origination and operating costs. These competitors may
offer more favorable pricing through lower interest rates on loans or higher interest rates on deposits, which
could force us to match competitive rates and thereby reduce our net interest income.

Negative publicity could damage our reputation.

Reputation risk, or the risk to our earnings and capital from negative public opinion, is inherent in our business.
Negative public opinion could adversely affect our ability to keep and attract customers and expose us to adverse
legal and regulatory consequences. Negative public opinion could result from our actual or alleged conduct in
any number of activities, including lending practices, corporate governance, regulatory compliance, mergers and
acquisitions, and disclosure, sharing or inadequate protection of customer information, and from actions taken by
government regulators and community organizations in response to that conduct. Because we conduct all of our
business under the “First Commonwealth” brand, negative public opinion about one business could affect our
other businesses.

An interruption to our information systems could adversely impact our operations.

We rely upon our information systems for operating and monitoring all major aspects of our business, including
deposit and loan operations, as well as internal management functions. These systems and our operations could
be damaged or interrupted by natural disasters, power loss, network failure, improper operation by our
employees, security breaches, computer viruses, intentional attacks by third parties or other unexpected events.
Any disruption in the operation of our information systems could adversely impact our operations, which may
affect our financial condition, results of operations and cash flows.

Provisions of our articles of incorporation, bylaws and Pennsylvania law, as well as state and federal
banking regulations, could delay or prevent a takeover of us by a third party.

Provisions in our articles of incorporation and bylaws, the corporate law of the Commonwealth of Pennsylvania,
and state and federal regulations could delay, defer or prevent a third party from acquiring us, despite the
possible benefit to our shareholders, or otherwise adversely affect the price of our common stock. These
provisions include, among other things, advance notice requirements for proposing matters that shareholders may
act on at shareholder meetings. In addition, under Pennsylvania law, we are prohibited from engaging in a
business combination with any interested shareholder for a period of five years from the date the person became
an interested shareholder unless certain conditions are met. These provisions may discourage potential takeover
attempts, discourage bids for our common stock at a premium over market price or adversely affect the market
price of, and the voting and other rights of the holders of, our common stock.

ITEM 1B. Unresolved Staff Comments

None.

ITEM 2.

Properties

Our principal office is located in the old Indiana County courthouse complex, consisting of the former
courthouse building and the former sheriff’s residence and jail building for Indiana County. This certified
Pennsylvania and national historic landmark was built in 1870 and restored by us in the early 1970s. We lease the
complex from Indiana County pursuant to a lease agreement that was originally signed in 1973 and has a current
term that expires in 2048.

The majority of our administrative personnel are also located in two owned buildings and one leased premise in
Indiana, Pennsylvania, each of which is in close proximity to our principal office.

16

ITEM 2. Properties (Continued)

First Commonwealth Bank has 112 banking offices of which 27 are leased and 85 are owned. We also lease two
loan production offices.

While these facilities are adequate to meet our current needs, available space is limited and additional facilities
may be required to support future expansion. However, we have no current plans to lease, purchase or construct
additional administrative facilities.

ITEM 3. Legal Proceedings

The information required by this Item is set forth in Part I, Item 8, Note 26, “Contingent Liabilities,” which is
incorporated herein by reference in response to this item.

ITEM 4. Mine Safety Disclosures

Not applicable

Executive Officers of First Commonwealth Financial Corporation

The name, age and principal occupation for each of the executive officers of First Commonwealth Financial
Corporation as of December 31, 2011 is set forth below:

I. Robert Emmerich, age 61, has served as Executive Vice President and Chief Credit Officer of First
Commonwealth Bank since 2009. Prior to joining First Commonwealth, Mr. Emmerich was retired from a
31-year career at National City Corporation, where he most recently served as Executive Vice President & Chief
Credit Officer for Consumer Lending.

Leonard V. Lombardi, age 52, has served as Executive Vice President and Chief Audit Executive of First
Commonwealth Financial Corporation since January 1, 2009. He was formerly Senior Vice President / Loan
Review and Audit Manager.

Sue A. McMurdy, age 55, has served as Executive Vice President and Chief Information Officer of First
Commonwealth Financial Corporation since 2000. She formerly served as President and Chief Executive Officer
of First Commonwealth Systems Corporation, an information technology and data processing subsidiary that we
merged into First Commonwealth Bank in 2006.

T. Michael Price, age 49, has served as President of First Commonwealth Bank since November 2007. As of
January 1, 2012, he began serving as Interim President and Chief Executive Officer of First Commonwealth
Financial Corporation. He was formerly Chief Executive Officer of the Cincinnati and Northern Kentucky
Region of National City Bank from July 2004 to November 2007 and Executive Vice President and Head of
Small Business Banking of National City Bank prior to July 2004.

Robert E. Rout, age 60, joined First Commonwealth Financial Corporation as Executive Vice President and
Chief Financial Officer in February 2010. Prior to joining First Commonwealth, Mr. Rout served as Chief
Financial Officer and Secretary for S&T Bancorp, Inc. in Indiana, PA, since 1999 and as Chief Administrative
Officer of S&T Bancorp, Inc. since April 2008.

Matthew C. Tomb, age 35, has served as Executive Vice President, Chief Risk Officer and General Counsel of
First Commonwealth Financial Corporation since November 2010. He previously served as Senior Vice
President / Legal and Compliance since September 2007. Before joining First Commonwealth, Mr. Tomb
practiced law with Sherman & Howard L.L.C. in Denver, Colorado.

17

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of

Equity Securities

First Commonwealth is listed on the NYSE under the symbol “FCF.” As of December 31, 2011, there were
approximately 8,158 holders of record of First Commonwealth’s common stock. The table below sets forth the
high and low sales prices per share and cash dividends declared per share for common stock of First
Commonwealth for each quarter during the last two fiscal years.

Period

High Sale Low Sale

Cash Dividends
Per Share

2011
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$7.36
$6.96
$5.89
$5.45

$6.11
$5.18
$3.66
$3.55

$0.03
$0.03
$0.03
$0.03

Period

High Sale Low Sale

Cash Dividends
Per Share

2010
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$7.00
$7.54
$6.17
$7.45

$4.15
$4.86
$4.90
$5.47

$0.03
$0.01
$0.01
$0.01

Federal and state regulations contain restrictions on the ability of First Commonwealth to pay dividends. For
information regarding restrictions on dividends, see Part I, Item 1 “Business—Supervision and Regulation—
Restrictions on Dividends” and Part II, Item 8, “Financial Statements and Supplementary Data—Note 28
(Regulatory Restrictions and Capital Adequacy).” In addition, under the terms of the capital securities issued by
First Commonwealth Capital Trust I, II, and III, First Commonwealth could not pay dividends on its common
stock if First Commonwealth deferred payments on the junior subordinated debt securities which provide the
cash flow for the payments on the capital securities.

18

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of

Equity Securities (Continued)

The following five-year performance graph compares the cumulative total shareholder return (assuming
reinvestment of dividends) on First Commonwealth’s common stock to the KBW Regional Banking Index and
the Russell 2000 Index. The stock performance graph assumes $100 was invested on December 31, 2006, and the
cumulative return is measured as of each subsequent fiscal year end.

Total Return Performance

120

100

80

60

40

e
u
l
a
V
x
e
d
n
I

First Commonwealth Financial Corporation

Russell 2000

KBW Regional Banking Index

20
12/31/06

12/31/07

12/31/08

12/31/09

12/31/10

12/31/11

Index

12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011

First Commonwealth Financial Corporation . . . .
Russell 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
KBW Regional Banking Index . . . . . . . . . . . . . .

100.00
100.00
100.00

84.18
98.43
78.01

103.80
65.18
63.52

39.89
82.89
49.47

61.35
105.14
59.55

46.57
100.75
56.49

Period Ending

19

 
ITEM 6. Selected Financial Data

The following selected financial data is not covered by the auditor’s report and should be read in conjunction
with Management’s Discussion and Analysis of Financial Condition and Results of Operations, which follows,
and with the Consolidated Financial Statements and related notes.

2011

2010

2009

2008

2007

Periods Ended December 31,

(dollars in thousands, except share data)
268,360
61,599

293,281
86,771

327,596
138,998

$

$

$

206,761
61,552

206,510
100,569

188,598
23,095

Interest income . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . .

$

Net interest income . . . . . . . . . .
Provision for credit losses . . . . . . . . .

Net interest income after

provision for credit losses . . .
Net impairment losses . . . . . . . . . . . .
Net securities gains . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . .

Income (Loss) before income

taxes . . . . . . . . . . . . . . . . . . . .
Income tax (benefit) provision . . . . .

$

231,545
41,678

189,867
55,816

134,051
0
2,185
55,484
176,826

145,209
(9,193)
2,422
56,005
171,226

105,941
(36,185)
273
55,237
171,151

(45,885)
(25,821)

165,503
(13,011)
1,517
54,325
158,615

49,719
6,632

14,894
(380)

23,217
239

331,095
169,713

161,382
10,042

151,340
0
1,174
47,696
148,007

52,203
5,953

46,250

Net Income (Loss) . . . . . . . . . . .

$

15,274

$

22,978

$

(20,064) $

43,087

$

Per Share Data—Basic

Net Income (Loss) . . . . . . . . . . .
Dividends declared . . . . . . . . . .
Average shares outstanding . . . .

$
$

0.15
0.12
104,700,227

$
$

0.25
0.06
93,197,225

$
$

(0.24) $
$
0.18
84,589,780

0.58
0.68
74,477,795

$
$

0.64
0.68
72,816,208

Per Share Data—Diluted

Net Income (Loss) . . . . . . . . . . .
Average shares outstanding . . . .

$

0.15
104,700,393

$

0.25
93,199,773

$

(0.24) $

84,589,780

0.58
74,583,236

$

0.63
72,973,259

At End of Period

Total assets . . . . . . . . . . . . . . . .
Investment securities . . . . . . . . .
Loans and leases, net of

unearned income . . . . . . . . . .
Allowance for credit losses . . . .
Deposits . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . .
Subordinated debentures . . . . . .
Other long-term debt . . . . . . . . .
Shareholders’ equity . . . . . . . . .

Key Ratios

Return on average assets . . . . . .
Return on average equity . . . . . .
Net loans to deposits ratio . . . . .
Dividends per share as a percent
of net income per share . . . . .

Average equity to average

assets ratio . . . . . . . . . . . . . . .

$

5,841,122
1,182,572

$ 5,812,842
1,016,574

$ 6,446,293
1,222,045

$ 6,425,880
1,452,191

$ 5,883,618
1,645,714

4,057,055
61,234
4,504,684
312,777
105,750
101,664
758,543

4,218,083
71,229
4,617,852
187,861
105,750
98,748
749,777

4,636,501
81,639
4,535,785
958,932
105,750
168,697
638,811

4,418,377
52,759
4,280,343
1,139,737
105,750
183,493
652,779

3,697,819
42,396
4,347,219
354,201
105,750
442,196
568,788

0.27%
2.00
88.70

82.26

13.33

0.37%
3.33
89.80

23.72

11.26

(0.31)%
(3.06)
100.42

0.70%
7.45
101.99

0.80%
8.08
84.09

NA

117.54

106.25

10.16

9.35

9.87

20

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

The following discussion and analysis represents an overview of the financial condition and the results of
operations of First Commonwealth and its subsidiaries, FCB, First Commonwealth Insurance Agency, Inc.
(“FCIA”) and First Commonwealth Financial Advisors, Inc. (“FCFA”), as of and for the years ended
December 31, 2011, 2010 and 2009. The purpose of this discussion is to focus on information concerning our
financial condition and results of operations that is not readily apparent from the Consolidated Financial
Statements. In order to obtain a clear understanding of this discussion, you should refer to the Consolidated
Financial Statements, the notes thereto and other financial information presented in this Annual Report.

Company Overview

First Commonwealth provides a diversified array of consumer and commercial banking services through our
bank subsidiary, FCB. We also provide trust and wealth management services through FCFA and insurance
products through FCIA. At December 31, 2011, FCB operated 112 community banking offices throughout
western Pennsylvania and two loan production offices in downtown Pittsburgh and State College, Pennsylvania.

Our consumer services include Internet and telephone banking, an automated teller machine network, personal
checking accounts, interest-earning checking accounts, savings accounts, insured money market accounts, debit
cards, investment certificates, fixed and variable rate certificates of deposit, secured and unsecured installment
loans, construction and mortgage loans, safe deposit facilities, credit lines with overdraft checking protection,
and IRA accounts. Commercial banking services include commercial lending, small and high-volume business
checking accounts, on-line account management services, ACH origination, payroll direct deposit, commercial
cash management services and repurchase agreements. We also provide a variety of trust and asset management
services and a full complement of auto, home and business insurance as well as term life insurance. We offer
annuities, mutual funds, stock and bond brokerage services through an arrangement with a broker-dealer and
insurance brokers. Most of our commercial customers are small and mid-sized businesses in central and western
Pennsylvania.

As a financial institution with a focus on traditional banking activities, we earn the majority of our revenue
through net interest income, which is the difference between interest earned on loans and investments and
interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth
and maintaining or increasing our net interest margin, which is net interest income (on a fully taxable-equivalent
basis) as a percentage of our average interest-earning assets. We also generate revenue through fees earned on
various services and products that we offer to our customers and through sales of assets, such as loans,
investments or properties. These revenue sources are offset by provisions for credit losses on loans, loss on sale
or other-than-temporary impairments on investment securities, operating expenses and income taxes.

General economic conditions also affect our business by impacting our customers’ need for financing, thus
affecting loan growth, and impacting the credit strength of existing and potential borrowers.

Critical Accounting Policies and Significant Accounting Estimates

First Commonwealth’s accounting and reporting policies conform to accounting principles generally accepted in
the United States of America (“GAAP”) and predominant practice in the banking industry. The preparation of
financial statements in accordance with GAAP requires management to make estimates, assumptions and
judgments that affect the amounts reported in the financial statements and accompanying notes. Over time, these
estimates, assumptions and judgments may prove to be inaccurate or vary from actual results and may
significantly affect our reported results and financial position for the period presented or in future periods. We
currently view the determination of the allowance for credit losses, fair value of financial instruments, goodwill
and other intangible assets, and income taxes to be critical because they are highly dependent on subjective or
complex judgments, assumptions and estimates made by management.

21

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

(Continued)

Critical Accounting Policies and Significant Accounting Estimates (Continued)

Allowance for Credit Losses

We account for the credit risk associated with our lending activities through the allowance and provision for
credit losses. The allowance represents management’s best estimate of probable losses that are inherent in our
existing loan portfolio as of the balance sheet date. The provision is a periodic charge to earnings in an amount
necessary to maintain the allowance at a level that is appropriate based on management’s assessment of probable
estimated losses. Management determines and reviews with the Board of Directors the adequacy of the allowance
on a quarterly basis in accordance with the methodology described below.

•

Individual loans are selected for review in accordance with Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 310, “Receivables.” These are generally
large balance commercial loans and commercial mortgages that are rated less than “satisfactory” based
on our internal credit-rating process.

• We assess whether the loans identified for review in step one are “impaired,” which means that it is
probable that all amounts will not be collected according to the contractual terms of the loan
agreement, which generally represents loans that management has placed on nonaccrual status.

•

For impaired loans we calculate the estimated fair value of the loans that are selected for review based
on observable market prices, discounted cash flows or the value of the underlying collateral and record
an allowance if needed.

• We then select pools of homogenous smaller balance loans having similar risk characteristics as well as
unimpaired larger commercial loans for evaluation collectively under the provisions of FASB ASC
Topic 450, “Contingencies.” These smaller balance loans generally include residential mortgages,
consumer loans, installment loans and some commercial loans.

•

FASB ASC Topic 450 loans are segmented into groups with similar characteristics and an allowance
for credit losses is allocated to each segment based on recent loss history and other relevant
information.

• We then review the results to determine the appropriate balance of the allowance for credit losses. This
review includes consideration of additional factors, such as the mix of loans in the portfolio, the
balance of the allowance relative to total loans and nonperforming assets, trends in the overall risk
profile in the portfolio, trends in delinquencies and nonaccrual loans, and local and national economic
information and industry data, including trends in the industries we believe are higher risk.

There are many factors affecting the allowance for credit losses; some are quantitative while others require
qualitative judgment. These factors require the use of estimates related to the amount and timing of expected
future cash flows, appraised values on impaired loans, collateral valuations for classified loans that are not
impaired, estimated losses for each loan category based on historical loss experience and delinquency trends by
category using a four to twenty quarter average, and consideration of current economic trends and conditions, all
of which may be susceptible to significant judgment and change. To the extent that actual outcomes differ from
estimates, additional provisions for credit losses could be required that could adversely affect our earnings or
financial position in future periods. The loan portfolio represents the largest asset category on our Consolidated
Statements of Financial Condition.

22

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

(Continued)

Critical Accounting Policies and Significant Accounting Estimates (Continued)

Fair Values of Financial Instruments

FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a framework for measuring fair
value. In accordance with FASB ASC Topic 820, First Commonwealth groups financial assets and financial
liabilities measured at fair value in three levels based on the markets in which the assets and liabilities are traded
and the reliability of the assumptions used to determine fair value.

Level 1 valuations are obtained from readily available pricing sources for market transactions involving identical
assets or liabilities. Level 2 valuations are for instruments that trade in less active dealer or broker markets and
incorporates values obtained for identical or comparable instruments. Level 3 valuations 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. Level 3 valuations incorporate certain
assumptions and projections in determining the fair value assigned to each instrument.

Level 2 investment securities are valued by a recognized third party pricing service using observable inputs.
Management validates the market values provided by the third party service by having another recognized
pricing service price a random sample of securities each quarter, 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.

Level 3 investments include pooled trust preferred collateralized debt obligations. The fair values of these
investments are determined by a specialized third party valuation service. Management validates the fair value of
the pooled trust preferred collateralized debt obligations by monitoring the performance of the underlying
collateral, discussing the discount rate, cash flow assumptions, and general market trends with the specialized
third party and by confirming changes in the underlying collateral to the trustee and underwriter reports.
Management’s monitoring of the underlying collateral includes deferrals of interest payments, payment defaults,
cures of previously deferred interest payments, any regulatory filings or actions and general news related to the
underlying collateral. Management also evaluates fair value changes compared to expectations based on changes
in the interest rates used in determining the discount rate and general financial markets.

Methodologies and estimates used by management when determining the fair value for pooled trust preferred
collateralized debt obligations and testing those securities for other-than-temporary impairment are discussed in
detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in
Note 11 “Impairment of Investment Securities” and Note 21 “Fair Values of Assets and Liabilities” of Notes to
Consolidated Financial Statements.

Goodwill and Other Intangible Assets

We consider our accounting policies related to goodwill and other intangible assets to be critical because the
assumptions or judgment used in determining the fair value of assets and liabilities acquired in past acquisitions
are subjective and complex. As a result, changes in these assumptions or judgment could have a significant
impact on our financial condition or results of operations.

The fair value of acquired assets and liabilities, including the resulting goodwill, was based either on quoted
market prices or provided by other third-party sources, when available. When third-party information was not
available, estimates were made in good faith by management primarily through the use of internal cash flow
modeling techniques. The assumptions that were used in the cash flow modeling were subjective and are
susceptible to significant changes.

23

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

(Continued)

Critical Accounting Policies and Significant Accounting Estimates (Continued)

Goodwill and Other Intangible Assets (Continued)

Goodwill and other intangible assets with indefinite useful lives are tested for impairment at least annually and
written down and charged to results of operations only in periods in which the recorded value is more than the
estimated fair value. Intangible assets that have finite useful lives will continue to be amortized over their useful
lives and are periodically evaluated for impairment.

As of December 31, 2011, goodwill and other intangible assets were not considered impaired; however, changing
economic conditions that may adversely affect our performance and stock price could result in impairment,
which could adversely affect earnings in future periods. As a result of our Step 2 analysis as of December 31,
2011, it was determined that the fair value of our goodwill exceeded its carrying value by approximately 40%.

Income Taxes

We estimate income tax expense based on amounts expected to be owed to the tax jurisdictions where we
conduct business. On a quarterly basis, management assesses the reasonableness of its effective tax rate based
upon its current estimate of the amount and components of net income, tax credits and the applicable statutory
tax rates expected for the full year.

Deferred income tax assets and liabilities are determined using the asset and liability method and are reported in
the Consolidated Statements of Financial Condition. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. If current available information raises
doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and
liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Management assesses all available positive
and negative evidence on a quarterly basis to estimate if sufficient future taxable income will be generated to
utilize the existing deferred tax assets. The amount of future taxable income used in management’s valuation is
based upon management approved forecasts, evaluation of historical earnings levels, proven ability to raise
capital to support growth or during times of economic stress and consideration of prudent and feasible potential
tax strategies. If future events differ from our current forecasts, a valuation allowance may be required, which
could have a material impact on our financial condition and results of operations.

Accrued taxes represent the net estimated amount due to taxing jurisdictions and are reported in other liabilities
in the Consolidated Statements of Financial Condition. Management evaluates and assesses the relative risks and
appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial
precedent and other information and maintains tax accruals consistent with its evaluation of these relative risks
and merits. Changes to the estimate of accrued taxes occur periodically due to changes in tax rates,
interpretations of tax laws, the status of examinations being conducted by taxing authorities and changes to
statutory, judicial and regulatory guidance. These changes, when they occur, can affect deferred taxes and
accrued taxes, as well as the current period’s income tax expense and can be significant to our operating results.

Results of Operations—2011 Compared to 2010

Net Income

Net income for 2011 was $15.3 million, or $0.15 per diluted share, as compared to a net income of $23.0 million,
or $0.25 per diluted share, in 2010. The decline in performance in 2011 was primarily the result of a $16.9

24

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

(Continued)

Results of Operations—2011 Compared to 2010 (Continued)

Net Income (Continued)

million decrease in net interest income, an increase of $6.7 million related to loss on sale or write-downs of
assets, and a $6.8 million increase in credit risk recognized on interest rate swaps. Partially offsetting the income
declines are a $5.7 million decrease in provision for credit losses in 2011, a decrease of $9.2 million in other-
than-temporary impairment losses related to our pooled trust preferred collateralized debt obligation portfolio, a
$3.3 million increase in gain on the sale of assets and a $2.5 million increase in income from other real estate
owned.

Our return on average equity was 2.0% and return on average assets was 0.27% for 2011, compared to 3.33% and
0.37%, respectively, for 2010.

Average diluted shares for the year 2011 were 12% greater than the comparable period in 2010 primarily due to
the issuance of 18.5 million shares of common stock in connection with a capital raise that was not completed
until August 2010.

Net Interest Income

Net interest income, which is our primary source of revenue, is the difference between interest income from
earning assets (loans and securities) and interest expense paid on liabilities (deposits, short-term borrowings and
long-term debt). The amount of net interest income is affected by both changes in the level of interest rates and
the amount and composition of interest-earning assets and interest-bearing liabilities. The net interest margin is
expressed as the percentage of net interest income, on a fully taxable equivalent basis, to average interest-earning
assets. To compare the tax exempt asset yields to taxable yields, amounts are adjusted to the pretaxable
equivalent amounts based on the marginal corporate federal income tax rate of 35%. The taxable equivalent
adjustment to net interest income for 2011 was $5.5 million compared to $9.2 million in 2010.

On a fully taxable equivalent basis, net interest income for 2011 was $20.6 million, or 10% lower than 2010,
primarily due to a $427.1 million, or 8%, decline in average interest earning assets and an 8 basis point decrease
in the net interest margin. Positively affecting net interest income in 2011 was a $121.2 million increase in
average net free funds. Average net free funds are the excess of demand deposits, other noninterest-bearing
liabilities and shareholders’ equity over nonearning assets. Net interest margin, on a fully taxable equivalent
basis was 3.80% in 2011 compared to 3.88% in 2010. The relatively stable net interest margin can be attributed
to a more favorable deposit mix, lower costing deposits, reduced balance sheet leveraging and disciplined loan
pricing.

Interest income, on a fully taxable equivalent basis, decreased $40.5 million, of which $24.5 million can be
attributed to the decline in average interest-earning assets and $16.0 million due to a 38 basis point decline in the
yield on interest-earning assets.

The decrease in average interest-earning assets was primarily due to a $405.5 million, or 9%, decrease in average
loans and $11.0 million, or 1%, decrease in average investment securities. The decrease in average loans can be
attributed to more disciplined underwriting guidelines related to geography and size for commercial loans, the
managing down of large credit relationships, generally weak borrower demand and expected declines in the 1-4
family mortgage portfolio. The decrease in average investment securities is primarily the result of a planned
reduction in the municipal securities portfolio as well as the reduction in corporate securities.

Interest and fees on loans, on a taxable equivalent basis, decreased $28.6 million of which $21.0 million is
attributable to the previously mentioned decline in average balances and $7.6 million is the result of the yield on
loans decreasing 19 basis points from 5.18% to 4.99%.

25

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

(Continued)

Results of Operations—2011 Compared to 2010 (Continued)

Net Interest Income (Continued)

Interest income on investment securities, on a taxable equivalent basis, decreased $11.9 million from 2010 of
which $3.5 million is attributable to the previously mentioned decline in balances and $8.4 million is due to a
108 basis point decrease in yield from 4.34% to 3.26%. Contributing to the investment yield decline was the
planned reduction in obligations of state and political subdivisions which had higher yields relative to the
remainder of the portfolio.

Interest expense on deposits decreased $16.3 million, of which $11.0 million is attributable to a decline in rates
paid and $5.3 million is due to a change in average balances. The cost of interest-bearing deposits decreased 37
basis points as a result of lower interest rates and improved deposit mix changes. Total average interest-bearing
deposits decreased $190.3 million, or 5%, primarily due to a decrease of $252.8 million, or 16%, in higher
costing average time deposits, offset by an increase of $62.5 million, or 3%, in average interest-bearing demand
and savings deposits. Average noninterest-bearing deposits increased $61.1 million, or 9.3%, in 2011.

Interest expense on short-term borrowings declined $1.2 million primarily due to a $305.2 million decline in
average balances while interest expense on long-term debt declined $2.4 million; $2.2 million as a result of the
$52.8 million decrease in average balances and $0.2 million due to a 9 basis point decrease in rate.

First Commonwealth uses simulation models to help manage exposure to changes in interest rates. A discussion
of the effects of changing interest rates is included in the “Market Risk” section of this discussion.

The following table reconciles interest income in the Consolidated Statements of Operations to net interest
income adjusted to a fully taxable equivalent basis for the periods presented:

For the Years Ended December 31,

2011

2010

2009

Interest income per Consolidated Statements of Operations . . . . . . . . . . . . . . .
Adjustment to fully taxable equivalent basis . . . . . . . . . . . . . . . . . . . . . . . . . . .

(dollars in thousands)
$268,360
9,174

$293,281
12,303

$231,545
5,500

Interest income adjusted to fully taxable equivalent basis (non-GAAP) . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

237,045
41,678

277,534
61,599

305,584
86,771

Net interest income adjusted to fully taxable equivalent basis (non-GAAP) . . . .

$195,367

$215,935

$218,813

26

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

(Continued)

Results of Operations—2011 Compared to 2010 (Continued)

Net Interest Income (Continued)

The following table provides information regarding the average balances and yields and rates on interest-earning
assets and interest-bearing liabilities for the periods ended December 31:

Average Balance Sheets and Net Interest Analysis

2011

2010

2009

Average
Balance

Income /
Expense (a)

Yield or
Rate

Average
Balance

Income /
Expense (a)

Yield or
Rate

Average
Balance

Income /
Expense (a)

Yield or
Rate

(dollars in thousands)

Assets
Interest-earning assets:

Interest-bearing deposits with

banks . . . . . . . . . . . . . . . . . . . . . . . $

26,477 $
Tax-free investment securities . . . . .
4,852
Taxable investment securities . . . . . . 1,043,798
Loans, net of unearned

64
328
33,812

income (b)(c)

. . . . . . . . . . . . . . . . 4,061,822

202,841

Total interest-earning assets . . . . . 5,136,949

237,045

0.24% $
6.76
3.24

37,043 $
120,239
939,459

94
8,025
37,988

0.25% $
6.67
4.04

678 $

235,256
1,102,597

7
16,069
50,799

0.96%
6.83
4.61

4.99

4.61

4,467,338

231,427

5,564,079

277,534

5.18

4.99

4,557,227

238,709

5,895,758

305,584

5.24

5.18

Noninterest-earning assets:

Cash . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for credit losses . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . .

75,071
(76,814)
593,248

Total noninterest-earning assets . .

591,505

77,259
(96,872)
592,612

572,999

77,983
(67,535)
551,806

562,254

Total Assets . . . . . . . . . . . . . . . $5,728,454

$6,137,078

$6,458,012

Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand

deposits (d) . . . . . . . . . . . . . . . . . . $ 607,756 $

Savings deposits (d) . . . . . . . . . . . . . 1,877,321
Time deposits . . . . . . . . . . . . . . . . . . 1,343,281
182,864
Short-term borrowings . . . . . . . . . . .
184,185
Long-term debt . . . . . . . . . . . . . . . . .

Total interest-bearing liabilities . . 4,195,407

515
7,252
25,729
728
7,454

41,678

0.08% $ 622,171 $
0.39
1.92
0.40
4.05

1,800,418
1,596,088
488,078
236,939

0.99

4,743,694

751
12,171
36,923
1,948
9,806

61,599

0.12% $ 601,594 $
0.68
2.31
0.40
4.14

1,515,636
1,735,533
1,031,664
285,526

1.30

5,169,953

1,677
16,946
51,179
4,216
12,753

86,771

0.28%
1.12
2.95
0.41
4.47

1.68

Noninterest-bearing liabilities and

shareholders’ equity:
Noninterest-bearing demand

deposits (d) . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . .

720,005
49,163
763,879

Total noninterest-bearing funding

sources . . . . . . . . . . . . . . . . . . . 1,533,047

Total Liabilities and

Shareholders’ Equity . . . . . $5,728,454

Net Interest Income and Net Yield on
Interest-Earning Assets . . . . . . . . .

658,947
43,413
691,024

1,393,384

$6,137,078

590,554
41,487
656,018

1,288,059

$6,458,012

$195,367

3.80%

$215,935

3.88%

$218,813

3.71%

Income on interest-earning assets has been computed on a taxable equivalent basis using the 35% federal income tax statutory rate.
Income on nonaccrual loans is accounted for on the cash basis, and the loan balances are included in interest-earning assets.

(a)
(b)
(c) Loan income includes loan fees.
(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.

27

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

(Continued)

Results of Operations—2011 Compared to 2010 (Continued)

Net Interest Income (Continued)

The following table sets forth certain information regarding changes in net interest income attributable to
changes in the volumes of interest-earning assets and interest-bearing liabilities and changes in the rates for the
periods indicated:

Analysis of Year-to-Year Changes in Net Interest Income

2011 Change from 2010

2010 Change from 2009

Total
Change

Change Due
To Volume

Change Due
To Rate (a)

Total
Change

Change Due
To Volume

Change Due
To Rate (a)

(dollars in thousands)

Interest-earning assets:

Interest-bearing deposits with banks . . . . .
Tax-free investment securities . . . . . . . . . .
Taxable investment securities . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

(30)
(7,697)
(4,176)
(28,586)

$

(26)
(7,696)
4,215
(21,006)

$

(4)
(1)
(8,391)
(7,580)

$

87
(8,044)
(12,811)
(7,282)

$

349
(7,856)
(7,521)
(4,710)

Total interest income (b) . . . . . . . . . . . .

(40,489)

(24,513)

(15,976)

(28,050)

(19,738)

Interest-bearing liabilities:

Interest-bearing demand deposits . . . . . . .
Savings deposits . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Long-term debt

(236)
(4,919)
(11,194)
(1,220)
(2,352)

Total interest expense . . . . . . . . . . . . . .

(19,921)

(17)
523
(5,840)
(1,221)
(2,184)

(8,739)

(219)
(5,442)
(5,354)
1
(168)

(926)
(4,775)
(14,256)
(2,268)
(2,947)

(11,182)

(25,172)

58
3,190
(4,114)
(2,229)
(2,172)

(5,267)

$

(262)
(188)
(5,290)
(2,572)

(8,312)

(984)
(7,965)
(10,142)
(39)
(775)

(19,905)

Net interest income . . . . . . . . . . . . . .

$(20,568)

$(15,774)

$ (4,794)

$ (2,878)

$(14,471)

$ 11,593

(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 taxable equivalent basis using the 35% 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
allowance for credit losses needed to absorb probable losses inherent in the loan portfolio, after giving
consideration to charge-offs and recoveries for the period. The provision for credit losses is an amount added to
the allowance against which credit losses are charged.

The provision for credit losses for the year 2011 totaled $55.8 million, a decrease of $5.7 million compared to the
year 2010. While the level of provision for credit losses decreased in 2011, it remained elevated as we worked to
reduce the level of problem credits. Contributing to the provision for credit losses in 2011 was continued
deterioration in collateral values, higher loss factors in the allowance for loan loss calculation due to the level of
2011 charge-offs as well as actions taken to resolve problem credits, such as the restructuring of nonaccrual loans
and the transfer of five loans to held for sale.

28

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

(Continued)

Results of Operations—2011 Compared to 2010 (Continued)

Provision for Credit Losses (Continued)

The table below provides a breakout of the provision for credit losses by loan category for the years ended
December 31:

2011

2010

Dollars

Percentage

Dollars

Percentage

Commercial, financial, agricultural and other
. . . . . .
Real estate construction . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . .
Loans to individuals . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,141
16,685
6,758
26,560
2,781
(109)

(dollars in thousands)
$10,215
41,261
4,581
1,690
2,802
1,003

6%
30
12
47
5
0

17%
67
7
3
4
2

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$55,816

100%

$61,552

100%

As evidenced by the table, the current year provision is largely the result of the real estate construction and
commercial real estate portions of the portfolio.

The 2011 provision related to commercial, financial, agricultural and other loans was primarily related to
amounts provided for a $10.3 million loan to an information technology company which was placed in
nonaccrual status in the second quarter of 2011.

The provision for credit losses for real estate construction loans in 2011 can be attributed to continued
deterioration in collateral values. Significant provisions in this category include $9.8 million related to six loans
placed in nonaccrual status prior to 2011 which showed deterioration of collateral values in 2011 and $6.3
million for four loans placed in nonaccrual status in 2011. At December 31, 2011, of the six loans placed in
nonaccrual status prior to 2011, one was totally charged off, three were moved to OREO and two remain in
nonaccrual status. One of the three loans moved to OREO was sold in the fourth quarter of 2011 for a $1.3
million gain and the other two remain in OREO representing $6.5 million of the total OREO balance. The two
loans which remain in nonaccrual status have a total balance of $9.1 million with a current specific reserve for
loan loss of $2.5 million. The four previously mentioned loans placed in nonaccrual status in 2011 have an
outstanding balance at December 31, 2011 of $2.9 million, after being reduced by charge-offs of $6.3 million.

The provision for commercial real estate loans in 2011 was primarily related to the restructure of two loans and
the movement of five loans to held for sale. A $5.7 million provision for credit losses was recognized on loans
secured by two apartment projects that were placed in nonaccrual status in 2011. In the fourth quarter, these loans
were restructured using an A/B loan split. This is a common means by which to restructure a distressed credit
whereby the original note is split into two notes: the performing “A” note, which carries a market rate of interest
and is underwritten according to our customary underwriting standards, and the nonperforming “B” note, which
carries a below-market interest rate. These notes have been placed on nonaccrual as of December 31, 2011 and
are considered to be impaired. Additional information on the restructure is provided in Note 12 to the
Consolidated Financial Statements. Additionally, five loans related to three borrowers were transferred to held
for sale in the fourth quarter of 2011. The unpaid principal balance on these loans totaled $23.0 million, $7.2
million of which related to one loan which was placed in nonaccrual status prior to 2011 and $15.8 million for
four loans placed in nonaccrual status during 2011. As a result of their transfer to held for sale, the loans were
valued at a sales exit strategy price resulting in charge-offs of $9.5 million. The total provision for credit losses
recognized in 2011 on these loans was $7.3 million and $9.5 million in charge-offs that were taken at the time the
loans were transferred to held for sale.

29

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

(Continued)

Results of Operations—2011 Compared to 2010 (Continued)

Provision for Credit Losses (Continued)

The allowance for credit losses was $61.2 million or 1.51% of total loans outstanding at December 31, 2011
compared to $71.2 million or 1.69% at December 31, 2010. The decrease in the allowance for credit losses and
the ratio of the allowance to total loans is primarily the result of the $10.7 million reduction in the level of
specific reserves assigned to troubled credits, which totaled $13.2 million and $23.9 million at December 31,
2011 and December 31, 2010, respectively.

The provision is a result of management’s assessment of credit quality statistics and other factors that would have
an impact on probable losses in the loan portfolio and the methodology used for determination of the adequacy of
the allowance for credit losses. The change in the allowance for credit losses is directionally consistent with the
increase in estimated losses within the loan portfolio determined by factors including certain loss events,
portfolio migration analysis, historical loss experience, delinquency trends, deterioration in collateral values and
volatility in the economy. Management believes that the allowance for credit losses is at a level deemed
sufficient to absorb losses inherent in the loan portfolio at December 31, 2011.

A detailed analysis of our credit loss experience for the previous five years is shown below:

Summary of Loan Loss Experience

2011

2010

2009

2008

2007

(dollars in thousands)

Loans outstanding at end of year . . . . . . . . . . . . . . $4,057,055 $4,218,083 $4,636,501 $4,418,377 $3,697,819

Average loans outstanding . . . . . . . . . . . . . . . . . . $4,061,822 $4,467,338 $4,557,227 $4,084,506 $3,687,037

Balance, beginning of year . . . . . . . . . . . . . . . . . .
Loans charged off:

Commercial, financial, agricultural, and

other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate construction . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . .
Loans to individuals . . . . . . . . . . . . . . . . . . .

Total loans charged off . . . . . . . . . . . . .

Recoveries of loans previously charged off:

Commercial, financial, agricultural, and

other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate construction . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . .
Loans to individuals . . . . . . . . . . . . . . . . . . .

Total recoveries . . . . . . . . . . . . . . . . . . .

Net credit losses . . . . . . . . . . . . . . . . . .
Provision charged to expense . . . . . . . . . . . . . . . .

71,229

81,639

52,759

42,396

42,648

7,114
28,886
4,107
24,861
3,325

68,293

473
955
132
349
573

2,482

65,811
55,816

22,293
41,483
5,226
2,466
3,841

75,309

2,409
0
252
163
523

3,347

71,962
61,552

20,536
36,892
4,604
7,302
4,378

73,712

448
0
81
914
580

2,023

71,689
100,569

3,640
67
2,529
3,479
4,166

3,185
50
2,662
1,832
3,925

13,881

11,654

426
0
14
187
522

1,149

12,732
23,095

495
0
90
102
673

1,360

10,294
10,042

Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . $

61,234 $

71,229 $

81,639 $

52,759 $

42,396

Ratios:
Net credit losses as a percentage of average loans
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allowance for credit losses as a percentage of

1.62%

1.61%

1.57%

0.31%

0.28%

end-of-period loans outstanding . . . . . . . . . . . .

1.51%

1.69%

1.76%

1.19%

1.15%

30

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

(Continued)

Results of Operations—2011 Compared to 2010 (Continued)

Noninterest Income

The components of noninterest income for each year in the three-year period ended December 31 are as follows:

2011

2010

2009

$ Change % Change

2011 compared to 2010

(dollars in thousands)

Noninterest Income:

Trust income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service charges on deposit accounts . . . . . . . . . . . . . .
Insurance and retail brokerage commissions . . . . . . .
Income from bank owned life insurance . . . . . . . . . . .
Income from other real estate owned . . . . . . . . . . . . .
Card related interchange income . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 6,498
14,775
6,376
5,596
2,460
11,968
10,343

$ 5,897
16,968
6,369
5,331
0
10,459
10,016

$ 4,805
17,440
7,259
4,442
0
8,559
12,600

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net impairment losses . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities gains . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives mark to market . . . . . . . . . . . . . . . . . . . . .

58,016
0
2,185
4,155
(6,687)

55,040
(9,193)
2,422
824
141

55,105
(36,185)
273
793
(661)

$

601
(2,193)
7
265
2,460
1,509
327

2,976
9,193
(237)
3,331
(6,828)

10%
(13)
0
5
0
14
3

5
100
(10)
404
(4,843)

Total noninterest income . . . . . . . . . . . . . . . . . . .

$57,669

$49,234

$ 19,325

$ 8,435

17%

Noninterest income, excluding gains and losses on sales, impairment losses on assets and derivatives mark to
market increased $3.0 million, or 5.4%, in 2011. The most notable changes included increases in card related
interchange income and rental income from other real estate owned and a decrease in service charges from
deposits. Income from other real estate owned includes the rental income received from a western Pennsylvania
office complex foreclosed on during the first quarter of 2011. The increase in card related interchange income
can be attributed to both growth in the number of demand deposit accounts as well as an increase in customer
card usage.

Despite an increase in the number of deposit accounts, service charges on deposits accounts declined in 2011.
The decrease in service charges is primarily the result of a $2.6 million decline in nonsufficient funds fees. The
primary reason for this decrease relates to regulatory changes enacted in the second half of 2010 as required by
Regulation E which governs the treatment of electronic funds transfers and our ability to collect fees for
overdrafts involving ATM and point of sale debit transactions.

Other significant changes in noninterest income are related to gains and losses on sales, impairment losses on
assets and derivatives mark to market. The largest of these changes is the decrease in net impairment losses on
pooled trust preferred securities. There were no impairment charges recognized on these securities in 2011
compared to $9.2 million in 2010. This can be attributed to improvement in the credit quality of the underlying
banks in these investments. As the credit quality of these banks improved the level of interest deferrals and
payment defaults declined.

Also positively affecting noninterest income is the increase in the gain on sale of assets which includes a $1.1
million gain on the sale of a private equity investment and $2.4 million in gains recognized in relation to the sale
of other real estate owned. During 2010, we only recognized $0.7 million in gains related to the sale of other real
estate owned. Of the gains recognized in 2011, $1.3 million related to the sale of land in Florida that was
foreclosed on and moved to OREO in the second quarter of 2011.

31

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

(Continued)

Results of Operations—2011 Compared to 2010 (Continued)

Noninterest Income (Continued)

Adversely affecting noninterest income is the $6.8 million increase in credit risk related to interest rate swaps.
Interest rate swaps entered into are primarily back-to-back swaps that represent an agreement entered into with a
loan customer with an offsetting agreement entered into with another financial institution. 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. Of the
total mark to market adjustment recognized, $4.4 million relates to two interest rate swaps for which the credit
quality of the counterparties (loan customers) deteriorated. Both of these interest rate swaps were terminated in
the fourth quarter of 2011.

Noninterest Expense

The components of noninterest expense for each year in the three-year period ended December 31 are as follows:

2011

2010

2009

$ Change % Change

2011 compared to 2010

(dollars in thousands)

Noninterest Expense:

Salaries and employee benefits . . . . . . . . . . . . . . . .
Net occupancy expense . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment expense . . . . . . . . . . . . . .
Data processing expense . . . . . . . . . . . . . . . . . . . . .
Pennsylvania shares tax expense . . . . . . . . . . . . . .
Intangible amortization . . . . . . . . . . . . . . . . . . . . . .
Collection and repossession expense . . . . . . . . . . .
Other professional fees and services . . . . . . . . . . . .
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan processing fees . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . .

$ 84,669
14,069
12,517
6,027
5,480
1,534
7,583
5,297
5,490
2,874
21,858

$ 84,988
14,271
12,568
5,671
5,455
2,031
4,430
4,131
7,948
1,490
25,528

$ 86,059
14,053
12,085
4,687
5,314
2,826
5,010
3,429
10,471
2,120
24,795

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale or write-down of assets . . . . . . . . . . .

167,398
9,428

168,511
2,715

170,849
302

$ (319)
(202)
(51)
356
25
(497)
3,153
1,166
(2,458)
1,384
(3,670)

(1,113)
6,713

(0)%
(1)
(0)
6
0
(24)
71
28
(31)
93
(14)

(1)
247

Total noninterest expense . . . . . . . . . . . . . . . .

$176,826

$171,226

$171,151

$ 5,600

3%

The 2011 increase in noninterest expense is largely attributable to expenses incurred to resolve numerous
problem commercial credits. Compared to 2010, credit collection costs increased $3.2 million and loss on sale or
write-down of assets increased $6.7 million. The loss on sale and write-down of assets is primarily the result of
declines in property values on OREO properties.

Salary and employee benefits reflect a minor decrease in 2011 as efficiency efforts have provided for progress in
managing these expenses. The number of full-time equivalent employees decreased 123 positions in 2011 and 56
in 2010. As a result of these efficiency efforts, $2.2 million in severance costs were included in salaries and
employee benefits in both 2011 and 2010. The results of this efficiency effort should be more apparent in future
periods as severance costs are expected to decrease and salary expense trends should be more consistent with the
reduction of full-time equivalent employees.

Collection and repossession expense increased during the year due to increased legal and consulting expenses
related to continuous efforts to resolve problem loans.

32

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

(Continued)

Results of Operations—2011 Compared to 2010 (Continued)

Noninterest Expense (Continued)

During 2011, FDIC insurance expense decreased due to changes made in the calculation of the expense. The
FDIC revised its assessment methodology with an effective date of April 1, 2011. The revised calculation is
based on net assets as opposed to total assets and resulted in favorable effects for us as well as the banking
industry in general.

In addition, loan processing fees increased due to an increase in indirect dealer fees paid. During March 2011, the
flat fee paid to dealers was increased, resulting in a $1.4 million increase in these fees. Other professional fees
also increased due to $0.8 million, primarily attributable to consulting services related to our organization-wide
efficiency effort.

Other operating expenses decreased in 2011 primarily due to a $1.1 million decrease in the reserve for unfunded
commitments. This decrease primarily results from lower expected usage in relation to available commitments on
lines of credit. Also affecting this line item is a $0.8 million decrease in miscellaneous other operating expenses
primarily due to lower operational expenses realized on the maintenance and preservation of properties in other
real estate owned. The recognition of loan expenses on consumer loans added to the decrease in other operating
expenses with a $1.4 million decrease in expense recognized. Additionally, the closure of three branch offices in
2011 provided for reduced operating expenses.

The most significant change in noninterest expense is the increase on loss on sale or write-down of assets. During
2011, $9.0 million was recognized in relation to the write-down of assets; of which $8.2 million related to one
OREO property. Updated appraisals received during the year indicated declines in the market value of this
property. Offsetting the increase in write-downs is the recognition of approximately $2.4 million less in losses on
the sale of other real estate owned.

Income Tax

The provision for income taxes was a benefit of $0.4 million in 2011 compared to expense of $0.2 million in
2010 as a result of pretax income of $14.9 million which is a decrease of $8.3 million in comparison to $23.2
million of pretax income in 2010.

The effective tax rate was 3% for the tax benefit in 2011 and 1% for the tax expense in 2010. We ordinarily
generate an annual effective tax rate that is less than the statutory rate of 35% due to benefits resulting from
tax-exempt interest, income from bank owned life insurance and tax benefits associated with low income housing
tax credits, which are relatively consistent regardless of the level of pretax income. The consistent level of tax
benefits that reduce our tax rate below the 35% statutory rate and the relatively low level of annual pretax income
produced a tax benefit for 2011 and a low annual effective tax rate for 2010. Primarily, the higher level of
tax-free income received related to bank owned life insurance was the primary cause of the tax benefit recorded
in the current year.

Financial Condition

First Commonwealth’s total assets increased by $28.3 million in 2011. Loans decreased $161.0 million, or 4%,
and investments increased $175.1 million, or 18%. Several factors affected loan growth in 2011, including
revised underwriting guidelines which limit geography and size for commercial loans, our goal to manage down
large credit relationships, generally weak borrower demand and expected declines in the 1-4 family mortgage
loan portfolio. Revised underwriting guidelines included less flexibility on exceptions and more robust
monitoring for loan to value, cash flow coverage, debt/equity and other credit quality measurement tools.

33

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

(Continued)

Financial Condition (Continued)

Geographic limitations included restricting consumer and small business loans to Pennsylvania counties in which
First Commonwealth had a branch or loan production office presence; commercial real estate and commercial
loan markets were prescribed within a 250 mile radius of First Commonwealth’s headquarter location in Indiana,
Pennsylvania. Commercial and industrial loan syndications are unlimited geographically in the United States for
select, high quality industry segments in which we have expertise.

In 2005, First Commonwealth implemented a strategic decision to exit the residential mortgage business,
satisfying customer requests for these loans through a joint venture or home equity loans. As a result, the
residential mortgage portfolio is projected to decline $60-$80 million annually, consistent with 2011, through
regularly scheduled repayments and payoffs.

During 2011, approximately $557.2 million in investments securities were sold, called or matured. Of this
amount, $9.8 million related to the divesting of corporate securities and $4.7 million related to the settlement of
portions of corporate securities. Additionally, $47.0 million was related to the sale or call of municipal securities.
These securities were also higher yielding securities and contributed to the decline in yield earned on the
portfolio. As a result, $381.9 million in asset-backed securities and $319.1 million in agency securities were
purchased in 2011 to help increase earnings from the portfolio with a reduced risk profile.

First Commonwealth’s total liabilities increased $19.5 million, or less than 1%, in 2011. Deposit decline of
$113.2 million, or 2%, was offset by an increase in short-term borrowings of $124.9 million, or 66 % and an
increase in long-term debt of $2.9 million, or 1%. Most of the decline in deposits was caused by the maturity or
withdrawal of time deposits. This decrease can be credited to lower rates being paid overall on these products and
decreased customer preferences to longer term investments in the current low interest rate environment.

We utilized short-term and long-term borrowings to fund the origination of new loans as well as the purchase of
investments. Long-term borrowings were obtained at lower costs than in prior years. The decrease in interest paid
on borrowings as well as lower rates being paid on deposits will help to mitigate the contracting pressure on the
net interest yield on interest-earning assets and interest-bearing liabilities.

Loan Portfolio

Following is a summary of our loan portfolio as of December 31:

2011

2010

2009

2008

2007

Amount %

Amount %

Amount %

Amount %

Amount %

Loans by Classification

(dollars in thousands)

Commercial, financial,

agricultural and other . . . . . . . . $ 996,739 25% $ 913,814 22% $1,127,320 25% $1,146,411 26% $ 911,758
213,272
261,482
1,232,886
875,759
464,144

2
Real estate construction . . . . . . . .
Residential real estate . . . . . . . . . . 1,137,059 28
Commercial real estate . . . . . . . . . 1,267,432 31
565,849 14
Loans to individuals . . . . . . . . . . .

6
1,127,273 27
1,354,074 32
561,440 13

528,841 12
1,199,819 27
1,047,506 24
495,800 11

9
1,202,386 26
1,320,715 28
557,336 12

428,744

76,564

25%
6
33
24
12

Total loans and leases net of

unearned income . . . . . . . . $4,043,643 100% $4,218,083 100% $4,636,501 100% $4,418,377 100% $3,697,819 100%

Total loans decreased $174.4 million, or 4%, from December 31, 2010 to December 31, 2011. The primary cause
of the decline is due to the decreases in the real estate construction of $184.9 million and commercial real estate
loans of $86.6 million. The decline in construction loans can be largely attributed to $27.9 million in net

34

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

(Continued)

Financial Condition (Continued)

Loan Portfolio (Continued)

charge-offs and $11.7 million of loans transferred to other real estate owned. Further affecting the balance of this
pool of loans is completed construction projects. As the projects are completed the loans are moved to permanent
financing and appropriately reclassified as commercial real estate. The decline in commercial real estate loans is
due to $24.5 million in net charge-offs, $13.4 million transferred to loans held for sale, $10.0 million transferred
to other real estate owned and normal payoffs and payments.

The decreases noted above were partially offset by loan growth for the year ending December 31, 2011 of $82.9
million, or 9%, in commercial, financial, agricultural and other loans, $9.8 million, or 1% growth in residential
real estate loans, primarily home equity, and $4.4 million, or 1% growth in loans to individuals, primarily
indirect automobiles.

Commercial, financial, agricultural and other loans total $996.7 million at December 31, 2011, or 25%, of the
total loan portfolio and $797.0 million, or 80%, are located within Pennsylvania. Within this category, $36.1
million, or 4% of the loans are in nonperforming status.

Commercial real estate loans at December 31, 2011 total $1.3 billion or 31% of the total loan portfolio and $1.2
billion, or 91% of the category total are located within Pennsylvania. Of the total commercial real estate
category, $41.5 million, or 3%, are in nonperforming status.

At December 31, 2011, the real estate construction loan portfolio totals $76.6 million, or 2% of the total loan
portfolio and $17.1 million, or 22% of the category total in nonperforming loans. At origination, the estimated
disbursement for the construction process is reviewed, including taking into consideration weather delays, to
ensure the adequacy of the interest reserve for the construction period. We review the projects regularly for the
status of the construction, the amount of disbursements and to monitor the interest reserve. The typical period for
a construction project is 18 – 24 months.

The majority of our loan portfolio is with borrowers located in Pennsylvania. As of December 31, 2011 and
2010, there were no concentrations of loans relating to any industry in excess of 10% of total loans.

Final loan maturities and rate sensitivities of the loan portfolio excluding consumer installment and mortgage
loans and before unearned income at December 31, 2011 were as follows (dollars in thousands):

Within
One Year

One to
5 Years

After
5 Years

Total

Commercial, financial, agricultural and other . . . . . . . . . . . . . . .
Real estate construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$687,597
45,736
178,231
28,276

(dollars in thousands)
$ 81,632
22,408
642,035
77,136

$101,218
8,420
447,166
20,880

$ 870,447
76,564
1,267,432
126,292

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$939,840

$577,684

$823,211

$2,340,735

Loans at fixed interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans at variable interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . .

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$271,048
306,636

$195,132
628,079

$577,684

$823,211

(a) The maturity of real estate construction loans include term commitments that follow the construction period.

Loans with these term commitments will be moved to the commercial real estate category when the
construction phase of the project is completed.

35

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

(Continued)

Financial Condition (Continued)

Loan Portfolio (Continued)

First Commonwealth has a regulatory established legal lending limit of $103.4 million to any one borrower or
closely related group of borrowers, but has established lower thresholds for credit risk management.

Nonperforming Loans

Nonperforming loans include nonaccrual loans and restructured loans. Nonaccrual loans represent loans on
which interest accruals have been discontinued. 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 under similar terms not available in the market.

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
typically placed in nonaccrual status when principal and interest is 90 days or more delinquent or there is
evidence of a significantly weakened financial condition of the borrower. Interest received on a nonaccrual loan
is normally applied as a reduction to loan principal rather than interest income utilizing the cost recovery
methodology of revenue recognition Past due loans are those loans which are contractually past due 90 days or
more as to interest or principal payments but are both well secured and in the process of collection.

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

36

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

(Continued)

Financial Condition (Continued)

Nonperforming Loans (Continued)

The following is a comparison of nonperforming and impaired assets and the effects on interest due to
nonaccrual loans for the period ended December 31:

Nonperforming and Impaired Assets and Effects on Interest Income Due to
Nonaccrual

2011

2010

2009

2008

2007

Nonperforming Loans:
Loans on nonaccrual basis . . . . . . . . . . . . . . . . $
Loans held for sale on nonaccrual basis . . . . . .
Troubled debt restructured loans on

33,635 $
13,412

(dollars in thousands)

84,741 $ 147,937 $

0

nonaccrual basis . . . . . . . . . . . . . . . . . . . . . .

44,841

31,410

Troubled debt restructured loans on accrual

basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20,276

1,336

619

0

0

55,922 $
0

54,119
0

0

132

0

147

Total nonperforming loans . . . . . . . . . . . . $ 112,164 $ 117,487 $ 148,556 $

56,054 $

54,266

Loans past due in excess of 90 days and still

12,853
accruing . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other real estate owned . . . . . . . . . . . . . . . . . . $
2,172
Loans outstanding at end of period . . . . . . . . . $4,057,055 $4,218,083 $4,636,501 $4,418,377 $3,697,819
Average loans outstanding . . . . . . . . . . . . . . . . $4,061,822 $4,467,338 $4,557,227 $4,084,506 $3,687,037
Nonperforming loans as a percentage of total

11,015 $
30,035 $

15,154 $
24,287 $

13,203 $
24,700 $

16,189 $
3,262 $

loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . $
Allowance for credit losses . . . . . . . . . . . . . . . $
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . $
Net charge-offs as a percentage of averge

2.76%
55,816 $
61,234 $
65,811 $

2.79%

3.20%

61,552 $ 100,569 $
81,639 $
71,229 $
71,689 $
71,962 $

1.27%
23,095 $
52,759 $
12,732 $

1.47%

10,042
42,396
10,294

loans outstanding (annualized) . . . . . . . . . . .

1.62%

1.61%

1.57%

0.31%

0.28%

Provision for credit losses as a percentage of

net charge-offs . . . . . . . . . . . . . . . . . . . . . . .

84.81%

85.53%

140.29%

181.39%

97.55%

Allowance for credit losses as a percentage of

end-of-period loans outstanding (a) . . . . . . .

1.51%

1.69%

1.76%

1.19%

1.15%

Allowance for credit losses as a percentage of

nonperforming loans (a) . . . . . . . . . . . . . . . .

62.01%

60.63%

54.96%

94.12%

78.13%

Gross income that would have been recorded

at original rates . . . . . . . . . . . . . . . . . . . . . . . $

Interest that was reflected in income . . . . . . . .

14,872 $
1,393

13,142 $
30

7,645 $
13

6,273 $
9

4,134
9

Net reduction to interest income due to

nonacrrual . . . . . . . . . . . . . . . . . . . . . . . . . . . $

13,479 $

13,112 $

7,632 $

6,264 $

4,125

Nonperforming Securities:
Nonaccrual securities at market value . . . . . . . $

0 $

15,823 $

3,258 $

0 $

0

(a) End of period loans and nonperforming loans exclude loans held for sale.

The nonperforming loans as a percentage of total loans remained at 2.8% for both December 31, 2011 and 2010.
Other real estate owned increased by $5.3 million to $30.0 million at December 31, 2011 compared to $24.7

37

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

(Continued)

Financial Condition (Continued)

Nonperforming Loans (Continued)

million at December 31, 2010. The most significant change in OREO during 2011 includes an $8.2 million write-
down of a food processing plant located in Pennsylvania as the result of updated appraisals and $7.3 million in
proceeds received from the sale of equipment in the same property. This property remains in OREO at
December 31, 2011 with a carrying value in line with an updated appraisal received in the fourth quarter of 2011.
Significant additions to OREO in 2011 include an office building in western Pennsylvania, a student housing
complex in eastern Pennsylvania and a lot development in eastern Pennsylvania.

Also included in nonperforming loans are troubled debt restructured loans (“TDR’s”). TDR’s 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 under terms not available in the market. The $18.9 million
increase in accruing TDR’s during 2011 is primarily the result of an $11.3 million loan to a waste management
company that moved from nonaccrual to accrual status in June 2011. This loan was paid off in full in January
2012. Other 2011 increases in accruing TDR’s can be attributed to smaller balance loans where First
Commonwealth is working with financially stressed borrowers during difficult economic times rather than
proceeding with foreclosures and judgments that potentially increase the loss to First Commonwealth. For
additional information on TDR’s please refer to Note 12 “Loans and Allowance for Credit Losses.”

Net credit losses were $65.8 million in 2011 compared to $72.0 million for the year 2010. Significant net credit
losses in 2011 included $20.4 million related to six real estate construction loans that were placed in nonaccrual
status prior to 2011, $6.3 million related to four real estate construction loans placed in nonaccrual status in 2011
and $3.3 million for one commercial real estate loan that was transferred to OREO in 2011. Additionally, $5.7
million in net credit losses were related to the previously mentioned restructure of two commercial real estate
loans and $9.5 million was the result of the transfer of five loans to held for sale. Additional detail on credit risk
is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under
“Credit Risk” on page 46.

Provision for credit losses as a percentage of net charge-offs decreased from 85.53% for the year ended
December 31, 2010 to 84.81% for the year ended December 31, 2011 primarily as a result of providing
allowance for credit losses for loans identified as troubled in 2010 that were subsequently charged-off, or
partially charged-off in 2011.

As of December 31, 2011, none of the pooled trust preferred collateralized debt obligations were considered to be
nonperforming securities, compared to $15.8 million which were considered to nonperforming at December 31,
2010. These securities were returned to performing status in 2011 because of evidence supporting management’s
estimate of future cash flows indicating that all remaining principal and interest will be received. Support for
these estimates include; no other-than-temporary impairment charges since the third quarter of 2010,
improvement in the underlying collateral of these bonds evidenced by a reduced level of new interest payment
deferrals and principal defaults as well as an increase in actual cures of deferring collateral.

38

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

(Continued)

Financial Condition (Continued)

Allowance for Credit Losses

Following is a summary of the allocation of the allowance for credit losses at December 31:

2011

2010

2009

2008

2007

Allowance
Amount

%
(a)

Allowance
Amount

%
(a)

Allowance
Amount

%
(a)

Allowance
Amount

%
(a)

Allowance
Amount

%
(a)

(dollars in thousands)

Commercial, financial,

25%
26% $16,885
25% $17,558
22% $31,369
25% $21,700
agricultural and other . . . . $18,200
6
1,186
12
12,961
9
18,224
6
18,002
2
6,756
33
4,780
27
4,347
26
27
5,847
5,454
28
8,237
24
12,565
24
9,424
28
17,526
32
16,913
31
18,961
2,652
4,195
4,731
4,215
4,244
12
11
12
13
14
4,328 N/A
4,274 N/A
3,942 N/A
4,945 N/A
4,836 N/A

Real estate construction . . . .
Residential real estate . . . . .
Commercial real estate . . . .
Loans to individuals . . . . . . .
Unallocated . . . . . . . . . . . . .

Total

. . . . . . . . . . . . . . . . . . $61,234

$71,229

$81,639

$52,759

$42,396

Allowance for credit losses

as percentage of
end-of-period loans
outstanding . . . . . . . . . . . .

1.51%

1.69%

1.76%

1.19%

1.15%

(a) Represents the percentage of loans in each category to total loans.

The allowance for credit losses decreased $10.0 million from December 31, 2010 to December 31, 2011 and the
allowance for credit losses as a percentage of end-of-period loans outstanding was 1.51% at December 31, 2011
compared to 1.69% at December 31, 2010. The 2011 decrease in both of these is primarily the result of a decline
in specific reserves held for nonperforming loans. The allowance for credit losses includes both a general reserve
for performing loans and specific reserves for nonperforming loans. Comparing December 31, 2011 to
December 31, 2010, the general reserve for performing loans increased from 1.15% to 1.21% of total performing
loans. Specific reserves decreased from 21.0% of nonperforming loans at December 31, 2010 to 14.0% of
nonperforming loans at December 31, 2010. The decline in specific reserves held is a direct result of charge-offs
recorded in 2011 related to nonaccrual loans that were transferred to held for sale and nonaccrual loans that were
partially charged-off due to continuous declines in collateral value. The allowance for credit losses as a
percentage of nonperforming loans increased from 60.6% to 62.0% at December 31, 2010 and 2011,
respectively, due primarily to the decline in loan balances as a result of the aforementioned charge-offs.

The allowance for credit losses represents management’s estimate of probable losses inherent in the loan
portfolio at a specific point in time. This estimate includes losses associated with specifically identified loans, as
well as estimated probable credit losses inherent in the remainder of the loan portfolio. Additions are made to the
allowance through both periodic provisions charged to income and recoveries of losses previously incurred.
Reductions to the allowance occur as loans are charged off. Management evaluates the adequacy of the
allowance at least quarterly, and in doing so relies on various factors including, but not limited to, assessment of
historical loss experience, delinquency and nonaccrual trends, portfolio growth, net realizable value of collateral
and current economic conditions. This evaluation is subjective and requires material estimates that may change
over time. For a description of the methodology used to calculate the allowance for credit losses, please refer to
“Critical Accounting Policies and Significant Accounting Estimates—Allowance for Credit Losses.”

Management reviews the local and national economic information and industry data, including the trends in the
industries we believe are indicative of higher risk to our portfolio, and an allocation is made to the allowance for

39

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

(Continued)

Financial Condition (Continued)

Allowance for Credit Losses (Continued)

credit losses based on this review, which is reflected in the “unallocated” line of the above table. Prior to 2008,
there was also an unallocated portion of the allowance to account for any factors or conditions that may cause a
probable credit loss that were not specifically identifiable or considered in the allowance for credit loss
methodology. In 2008, management determined that the allocation made based upon the review of economic and
industry data was sufficient to also account for any other factors that are not specifically identifiable. For years
prior to 2008, the “unallocated” line of the above table includes both the allocation made by management based
upon review of economic and industry data and the additional allocation that was made for items that were not
specifically identifiable.

Investment Portfolio

Marketable securities that we hold in our investment portfolio, which are classified as “securities available for
sale,” may be a source of liquidity; however, we do not anticipate liquidating the investments prior to maturity.
As indicated in Note 21 “Fair Values of Assets and Liabilities,” $24.4 million of available for sale securities at
December 31, 2011, are classified as Level 3 assets because of inactivity in the market.

Following is a detail schedule of the amortized cost of securities available for sale as of December 31:

2011

2010

2009

(dollars in thousands)

Obligations of U.S. Government Agencies:

Mortgage-Backed Securities—Residential

. . . . . . . . . . . . . . . . . . . . .

$

32,139

$ 36,719

$

44,357

Obligations of U.S. Government-Sponsored Enterprises:

. . . . . . . . . . . . . . . . . . . . .
Mortgage-Backed Securities—Residential
Mortgage-Backed Securities—Commercial
. . . . . . . . . . . . . . . . . . . .
Other Government-Sponsored Enterprises . . . . . . . . . . . . . . . . . . . . .
Obligations of States and Political Subdivisions . . . . . . . . . . . . . . . . . . . . .
Corporate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pooled Trust Preferred Collateralized Debt Obligations . . . . . . . . . . . . . . .

771,196
193
267,807
444
11,811
54,762

Total Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,138,352
1,860

618,454
233
184,531
47,175
21,226
58,780

967,118
5,137

749,417
281
75,000
170,278
22,545
69,374

1,131,252
12,231

Total Securities Available for Sale . . . . . . . . . . . . . . . . . . . . . . .

$1,140,212

$972,255

$1,143,483

As of December 31, 2011, securities available for sale had an amortized cost and fair value of $1.1 billion. Gross
unrealized gains were $35.1 million and gross unrealized losses were $32.5 million.

Following is a detail schedule of the amortized cost of securities held to maturity as of December 31, 2009. There
were no securities held to maturity as of December 31, 2011 and 2010.

Obligations of U.S. Government Agencies:

Mortgage-Backed Securities—Residential . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

29

Obligations of U.S. Government-Sponsored Enterprises:

Mortgage-Backed Securities—Residential . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of States and Political Subdivisions . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Securities Held to Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

89
36,640

$36,758

2009

(dollars in thousands)

40

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

(Continued)

Financial Condition (Continued)

Investment Portfolio (Continued)

The following is a schedule of the contractual maturity distribution of securities available for sale at
December 31, 2011.

U.S.
Government
Agencies and
Corporations

Within 1 year . . . . . . . . . . . . . . . . . . . . . . . . . .
After 1 but within 5 years . . . . . . . . . . . . . . . .
After 5 but within 10 years . . . . . . . . . . . . . . .
After 10 years . . . . . . . . . . . . . . . . . . . . . . . . .

$

9,654
274,564
152,775
634,342

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,071,335

States and
Political
Subdivisions

Other
Securities

Total
Amortized
Cost (a)

Weighted
Average
Yield*

(dollars in thousands)

$361
83
0
0

$444

$

0
0
0
66,573

$

10,015
274,647
152,775
700,915

0.88%
1.36
4.25
3.40

$66,573

$1,138,352

3.00

(a) Equities are excluded from this schedule because they have an indefinite maturity.
*

Yields are calculated on a taxable equivalent basis.

The decrease in average securities of $11.0 million in 2011 provided liquidity used to pay down both short-term
and long-term borrowings throughout the year. During 2011, the components of the investment portfolio with the
largest decreases in amortized cost included $46.7 million of obligations of state and political subdivisions and
$4.0 million of pooled trust preferred collateralized debt obligations. The decrease in obligations of state and
political subdivisions is a result of planned sales and maturity runoffs not reinvested, both which were part of a
strategy to mitigate future credit risk and improve our tax position. The pooled trust preferred portfolio decreased
primarily as a result of principal payments within the portfolio. Conversely, we experienced a $231.4 million
increase in amortized cost of obligations of U.S. Government agencies and sponsored enterprises. These
securities were purchased in an effort to increase the earnings from investments while keeping the risk of the
portfolio at a lower level.

Our investment portfolio includes an amortized cost of $54.8 million in pooled trust preferred collateralized debt
obligations at December 31, 2011. The valuation of these securities involves evaluating relevant credit and
structural aspects, determining appropriate performance assumptions and performing a discounted cash flow
analysis.

See Note 8 “Securities Available for Sale,” Note 9 “Securities Held to Maturity,” Note 10 “Other Investments,”
Note 11 “Impairment of Investment Securities,” and Note 21 “Fair Values of Assets and Liabilities” for
additional information related to the investment portfolio.

Deposits

Total deposits decreased $113.2 million, or 2%, in 2011, primarily due to a decrease in time deposits of $282.4
million, which was partially offset by a $169.2 million increase in lower cost transaction and savings deposits. As
interest paid on deposits continues to be historically low, customers migrate toward shorter term, more liquid
investments.

41

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

(Continued)

Financial Condition (Continued)

Deposits (Continued)

Time deposits of $100 thousand or more had remaining maturities as follows as of the end of each year in the
three-year period ended December 31:

2011

2010

2009

Amount

%

Amount

%

Amount

%

(dollars in thousands)

3 months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 3 months through 6 months . . . . . . . . . . . . . . . . . . .
Over 6 months through 12 months . . . . . . . . . . . . . . . . . .
Over 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 76,356
43,299
50,296
151,213

24% $ 94,957
65,560
13
16
60,658
165,576
47

24% $108,368
74,746
17
65,760
16
143,326
43

28%
19
17
36

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$321,164

100% $386,751

100% $392,200

100%

Short-Term Borrowings and Long-Term Debt

Short-term borrowings increased $124.9 million, or 66%, from $187.9 million as of December 31, 2010 to
$312.8 million at December 31, 2011. Long-term debt increased $2.9 million, or 1%, from $204.5 million at
December 31, 2010 to $207.4 million at December 31, 2011. The increase in both of these areas was to take
advantage of attractive interest rates in the wholesale funding markets as an alternative to certificates of deposit.
For additional information concerning our short-term borrowings, subordinated debentures and other long-term
debt, please refer to Note 18 “Short-term Borrowings,” Note 19 “Subordinated Debentures” and Note 20 “Other
Long-term Debt” of the Consolidated Financial Statements.

Contractual Obligations and Off-Balance Sheet Arrangements

The table below sets forth our contractual obligations to make future payments as of December 31, 2011. For a
more detailed description of each category of obligation, refer to the note in our Consolidated Financial
Statements indicated in the table below.

Footnote
Number
Reference

1 Year
or Less

After 1
But Within
3 Years

After 3
But Within
5 Years

After 5
Years

Total

FHLB Advances . . . . . . . . . . . . . . . . . . . . . .
Subordinated debentures . . . . . . . . . . . . . . .
ESOP loan . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . .

20
19
24
15

$27,072
0
1,600
3,834

(dollars in thousands)
6,145
$
$30,358
105,750
0
0
0
19,613
5,778

$37,822
0
0
6,679

$101,397
105,750
1,600
35,904

Total contractual obligations . . . . . . . . . . . .

$32,506

$44,501

$36,136

$131,508

$244,651

The table above excludes unamortized premiums and discounts on FHLB advances because these premiums and
discounts do not represent future cash obligations. The table also excludes our cash obligations upon maturity of
certificates of deposit, which is set forth in Note 17 “Interest-Bearing Deposits” of the Consolidated Financial
Statements.

In addition, see Note 14 “Commitments and Letters of Credit” for detail related to our off-balance sheet
commitments to extend credit, financial standby letters of credit, performance standby letters of credit and
commercial letters of credit as of December 31, 2011.

42

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

(Continued)

Financial Condition (Continued)

Contractual Obligations and Off-Balance Sheet Arrangements (Continued)

Commitments to extend credit, standby letters of credit and commercial letters of credit do not necessarily
represent future cash requirements since it is unknown if the borrower will draw upon these commitments and
often these commitments expire without being drawn upon. As of December 31, 2011, a reserve for probable
losses of $1.5 million was recorded for unused commitments and letters of credit.

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. Liquidity risk arises from the possibility that we may not be
able to meet our financial obligations and operating cash needs or may become overly reliant upon external
funding sources. In order to manage this risk, our Board of Directors has established a Liquidity Policy that
identifies primary sources of liquidity, establishes procedures for monitoring and measuring liquidity and
quantifies minimum liquidity requirements based on limits approved by our Board of Directors. This policy
designates our ALCO as the body responsible for meeting these objectives. The ALCO, which includes members
of executive management, reviews liquidity on a periodic basis and approves significant changes in strategies
that affect balance sheet or cash flow positions. Liquidity is centrally managed on a daily basis by our Treasury
Department who monitors liquidity using such measures as liquidity coverage ratios, liquidity gap ratios and
noncore funding ratios.

We generate funds to meet our cash flow needs primarily through the core deposit base of FCB and the maturity
or repayment of loans and other interest-earning assets, including investments. Core deposits are the most stable
source of liquidity a bank can have due to the long-term relationship with a deposit customer. The level of
deposits during any period is sometimes 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. Deposits decreased $113.2 million, or 2%, during 2011, and comprised 89% of total
liabilities at December 31, 2011, as compared to 91% at December 31, 2010. Proceeds from the maturity and
redemption of investment securities totaled $480.3 million during 2011 and provided funds used to pay down
borrowings in order to mitigate and better manage liquidity and interest rate risk. We also have available unused
wholesale sources of liquidity, including overnight federal funds and repurchase agreements, advances from the
Federal Home Loan Bank of Pittsburgh, borrowings through the discount window at the Federal Reserve Bank of
Cleveland and access to certificates of deposit through brokers. We have increased our borrowing capacity at the
Federal Reserve by establishing a Borrower-in-Custody of Collateral arrangement that enables us to pledge
certain loans, not being used as collateral at the Federal Home Loan Bank, as collateral for borrowings at the
Federal Reserve. At December 31, 2011 our borrowing capacity at the Federal Reserve related to this program
was $697.2 million and there were no amounts outstanding. Additionally, as of December 31, 2011, our
maximum borrowing capacity at the Federal Home Loan Bank of Pittsburgh was $1.1 billion and as of that date
outstanding borrowings totaled $183.8 million.

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 December 31, 2011, our
maximum borrowing capacity under this program was $857.9 million and as of that date there were no amounts
outstanding. We also participate in a reciprocal program which allows our depositors to receive expanded FDIC
coverage by placing multiple certificates of deposit at other CDARS member banks. As of December 31, 2011,
we obtained $10.2 million in certificates from this program at a weighted average rate of 0.85% and an average
maturity term of 61 days.

43

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

(Continued)

Liquidity (Continued)

First Commonwealth has an unsecured $15.0 million line of credit with another financial institution. There are no
amounts outstanding on this line as of December 31, 2011. Additionally, we guarantee a $1.6 million ESOP loan
with another financial institution. During 2010 and 2011, we did not meet debt covenants on either of these
agreements as a result of earnings or credit factors. As a result, in 2011 each of these lenders approved
modifications to their covenants. However, as a result of the fourth quarter net loss recognized by the company,
at December 31, 2011, we were not meeting the modified debt covenants for either of these agreements in
relation to the required return on average assets. We have obtained a waiver for the quarter ended December 31,
2011, from the lender of the $15.0 million line of credit and are working with the lender of the ESOP loan to
either obtain a waiver or an additional modification for these covenants.

Refer to “Financial Condition” above for additional information concerning our deposits, loan portfolio,
investment securities and borrowings.

Market Risk

Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices
and commodity prices. Our market risk is composed primarily of interest rate risk. Interest rate risk is comprised
of repricing risk, basis risk, yield curve risk and options risk. Repricing risk arises from differences in the cash
flow or repricing between asset and liability portfolios. Basis risk arises when asset and liability portfolios are
related to different market rate indices, which do not always change by the same amount. Yield curve risk arises
when asset and liability portfolios are related to different maturities on a given yield curve; when the yield curve
changes shape, the risk position is altered. Options risk arises from “embedded options” within asset and liability
products as certain borrowers have the option to prepay their loans when rates fall while certain depositors can
redeem or withdraw their deposits early when rates rise.

The process by which we manage our interest rate risk is called asset/liability management. The goals of our
asset/liability management are increasing net interest income without taking undue interest rate risk or material
loss of net market value of our equity, while maintaining adequate liquidity. Net interest income is increased by
growing earning assets and increasing the difference between the rate earned on earning assets and the rate paid
on interest-bearing liabilities. Liquidity is measured by the ability to meet both depositors’ and credit customers’
requirements.

We use an asset/liability model to measure our interest rate risk. Interest rate risk measures include earnings
simulation and gap analysis. Gap analysis is a static measure that does not incorporate assumptions regarding
future business. Gap analysis, while a helpful diagnostic tool, displays cash flows for only a single rate
environment. Net interest income simulations explicitly measure the exposure to earnings from changes in
market rates of interest. Our current financial position is combined with assumptions regarding future business to
calculate net interest income under various hypothetical rate scenarios. Our net interest income simulations
assume a level balance sheet whereby new volumes equal run-offs. The ALCO reviews earnings simulations over
multiple years under various interest rate scenarios. Reviewing these various measures provides us with a
reasonably comprehensive view of our interest rate profile.

The following gap analysis compares the difference between the amount of interest-earning assets and interest-
bearing liabilities subject to repricing over a period of time. The ratio of rate sensitive assets to rate sensitive
liabilities repricing within a one year period was 0.76 and 0.79 at December 31, 2011 and 2010, respectively. A
ratio of less than one indicates a higher level of repricing liabilities over repricing assets over the next twelve
months.

44

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

(Continued)

Market Risk (Continued)

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. Rate sensitive assets to rate sensitive liabilities repricing in
one year would indicate reduced net interest income in a rising interest rate scenario, and conversely, increased
net interest income in a declining interest rate scenario.

Following is the gap analysis as of December 31:

2011

0-90 Days

91-180
Days

181-365
Days

Cumulative
0-365 Days

(dollars in thousands)

Over 1 Year
Through 5
Years

Over 5
Years

Loans . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . .
Other interest-earning assets . . . . . .

$ 1,859,623
125,112
3,511

$156,447
107,723
0

$287,873
205,335
0

$2,303,943
438,170
3,511

$1,486,729
418,413
0

$174,495
320,739
0

Total interest-sensitive assets

(ISA) . . . . . . . . . . . . . . . . . .

1,988,246

264,170

493,208

2,745,624

1,905,142

495,234

Certificates of deposit . . . . . . . . . . .
Other deposits . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . .

154,218
2,526,747
386,683

192,154
0
25,147

323,085
0
299

669,457
2,526,747
412,129

517,572
0
68,334

10,531
0
39,728

Total interest-sensitive

liabilitites (ISL) . . . . . . . . . .

3,067,648

217,301

323,384

3,608,333

585,906

50,259

Gap . . . . . . . . . . . . . . . . .

$(1,079,402) $ 46,869

$169,824

$ (862,709) $1,319,236

$444,975

ISA/ISL . . . . . . . . . . . . . . . . . . . . . .
Gap/Total assets . . . . . . . . . . . . . . .

0.65
18.48%

1.22
0.80%

1.53
2.91%

0.76
14.77%

3.25
22.59%

9.85
7.62%

2010

0-90 Days

91-180
Days

181-365
Days

Cumulative
0-365 Days

(dollars in thousands)

Over 1 Year
Through 5
Years

Over 5
Years

Loans . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . .
Other interest-earning assets . . . . . .

$2,074,219
84,338
4

$190,558
108,385
0

$281,370
150,515
0

$2,546,147
343,238
4

$1,508,901
416,109
0

$163,035
255,820
0

Total interest-sensitive assets

(ISA) . . . . . . . . . . . . . . . . . . .

2,158,561

298,943

431,885

2,889,389

1,925,010

418,855

Certificates of deposit
. . . . . . . . . . .
Other deposits . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . .

278,610
2,431,106
287,883

247,766
0
141

404,315
0
288

930,691
2,431,106
288,312

537,518
0
63,943

11,648
0
40,104

Total interest-sensitive

liabilitites (ISL) . . . . . . . . . .

2,997,599

247,907

404,603

3,650,109

601,461

51,752

Gap . . . . . . . . . . . . . . . . . . . . . .

$ (839,038) $ 51,036

$ 27,282

$ (760,720) $1,323,549

$367,103

ISA/ISL . . . . . . . . . . . . . . . . . . . . . .
Gap/Total assets . . . . . . . . . . . . . . . .

0.72
14.23%

1.21
0.88%

1.07
0.46%

0.79
13.09%

3.20
22.77%

8.09
6.32%

45

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

(Continued)

Market Risk (Continued)

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 versus if rates remained unchanged utilizing a flat balance
sheet.

December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net interest income change (12 months)

-200

-100

+100

+200

(dollars in thousands)
$(7,787) $(3,997) $ 704
1,341
(5,245)

(1,143)

$2,324
4,066

The analysis and model used to quantify the sensitivity of our net interest income becomes less reliable in a
decreasing 200 basis point scenario given the current unprecedented low interest rate environment with federal
funds trading in the 0 to 25 basis point range. Results of the 100 and 200 basis point decline in interest rate
scenario is affected by the fact that many of our interest-bearing liabilities are at rates below 1% and therefore
cannot decline 100 or 200 basis points, yet our interest-sensitive assets are able to decline by these amounts. For
the years 2011 and 2010, the cost of our interest-bearing liabilities averaged 0.99% and 1.30%, respectively and
the yield on our average interest-earning assets, on a fully taxable equivalent basis, averaged 4.61% and 4.99%,
respectively.

The ALCO is responsible for the identification and management of interest rate risk exposure. As such, the
ALCO continuously evaluates strategies to manage our exposure to interest rate fluctuations.

Asset/liability models require certain assumptions be made, such as prepayment rates on earning assets and
pricing impact 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 to absorb losses
inherent in the loan portfolio at the date of each statement of financial condition. Management reviews the
adequacy 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 impaired loans with a balance
greater than $0.1 million, loss experience trends, delinquency and other relevant factors. While allocations are
made to specific loans and pools of loans, the total allowance is available for all loan losses.

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 $1.5 million at December 31, 2011, and is classified in
“Other liabilities” on the Consolidated Statements of Financial Condition.

Nonperforming loans include nonaccrual loans and loans classified as troubled debt restructured loans.
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

46

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

(Continued)

Credit Risk (Continued)

interest as a result of the deteriorating financial position of the borrower, who could not obtain comparable terms
from alternate financing sources. In 2011, 51 loans totaling $50.4 million were identified as troubled debt
restructurings resulting in specific reserves of $1.3 million.

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 in nonaccrual status when, based on regulatory definitions, the loan is maintained on a “cash basis”
due to the weakened financial condition of the borrower. The bank excludes from nonaccrual status any loans
contractually past due 90 days or more as to interest or principal payments if they are both well secured and in
the process of collection.

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 estimated fair value of
any underlying collateral or the present value of projected future cash flows. Losses or specifically assigned
allowance for credit losses are recognized where appropriate.

The allowance for credit losses was $61.2 million at December 31, 2011 or 1.51% of loans outstanding compared
to $71.2 million or 1.69% of loans outstanding at December 31, 2010. The allowance for credit losses as a
percentage of nonperforming loans was 62% at December 31, 2011 and 61% as of December 31, 2010. The
allowance for credit losses includes specific allocations of $13.2 million related to nonperforming loans covering
13% of the total nonperforming balance at December 31, 2011 and specific allocations of $23.9 million covering
20% of the total nonperforming balance at December 31, 2010. The amount of allowance related to
nonperforming loans was determined by using estimated fair values obtained from current appraisals and updated
discounted cash flow analyses.

Management believes that the allowance for credit losses is at a level that is sufficient to absorb losses inherent in
the loan portfolio at December 31, 2011.

The following table provides information on net charge-offs and nonperforming loans by loan category:

For the Year Ended December 31, 2011

As of December 31, 2011

% of
Total Net
Charge-
offs

Net
Charge-offs
as a %
of Average
Loans

Net
Charge-offs

Nonperforming
Loans (a)

% of Total
Nonperforming
Loans

Nonperforming
Loans as a % of
Total Loans

(dollars in thousands)

Commercial, financial,

agricultural and other . . . . . . . .
Real estate construction . . . . . . . .
Residential real estate . . . . . . . . . .
Commerical real estate . . . . . . . . .
Loans to individuals . . . . . . . . . . .

$ 6,641
27,931
3,975
24,512
2,752

10.09% 0.16%
42.44
6.04
37.25
4.18

0.69
0.10
0.60
0.07

$36,066
17,112
4,080
41,494
0

36.52%
17.33
4.13
42.02
0.00

0.89%
0.42
0.10
1.02
0.00

Total loans, net of unearned

income . . . . . . . . . . . . . . . .

$65,811

100.00% 1.62%

$98,752

100.00%

2.43%

(a) Nonperforming loan balances do not include loans held for sale.

As the above table illustrates, three categories of loans—commercial, financial, agricultural and other, real estate
construction, and commercial real estate—were a significant portion of the nonperforming loans as of
December 31, 2011. See discussions related to the provision for credit losses and loans for more information.

47

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

(Continued)

Results of Operations—2010 Compared to 2009

Summary of 2010 Results

Net income for 2010 was $23.0 million, or $0.25 per diluted share, as compared to a net loss of $20.1 million, or
$0.24 per diluted share, in 2009. Improved performance in 2010 was primarily the result of a $39.0 million
decrease in provision for credit losses as credit quality improved in 2010 and a decrease of $27.0 million in
other-than-temporary impairment losses related to our pooled trust preferred collateralized debt obligation
portfolio. Other areas contributing to improved performance in 2010 include $2.1 million in net security gains
largely due to sales of municipal securities, and effective expense management as noninterest expense remained
flat compared to 2009.

Our return on average equity was 3.33% and return on average assets was 0.37% for 2010, compared to (3.06)%
and (0.31)%, respectively, for 2009.

Average diluted shares for the year 2010 were 10% greater than the comparable period in 2009 primarily due to
the issuance of 18.5 million shares of common stock in connection with a capital raise completed in August
2010.

Net interest income, on a fully taxable equivalent basis, for 2010 was $2.9 million, or 1% lower than 2009,
primarily due to a $322.3 million, or 5.5%, decline in average interest earning assets, partially offset by a 16
basis point increase in the net interest margin. The decrease in average interest-earning assets was primarily due
to a $278.2 million, or 26%, decrease in average investment securities and an $89.9 million, or 2%, decrease in
average loans. Positively affecting net interest income in 2010 was a $104.0 million increase in average net free
funds.

Interest and fees on loans, on a fully taxable equivalent basis, decreased $7.3 million of which $4.7 million is
attributable to the previously mentioned decline in balances and $2.6 million is the result of the yield on loans
decreasing 6 basis points from 5.24% to 5.18%. Interest income on investment securities on a fully taxable
equivalent basis decreased $20.9 million from 2009 of which $15.4 million is attributable to the previously
mentioned decline in balances and $5.5 million is due to a 66 basis point decrease in yield from 5.00% to 4.34%.

Interest expense on deposits decreased $20.0 million, of which $19.1 million is attributable to a decline in rates paid
and $0.9 million is due to a change in balances. The cost of interest-bearing deposits decreased 57 basis points as a
result of lower interest rates and improved deposit mix changes. Total interest-bearing deposits increased $165.9
million, or 4%, primarily due to an increase of $305.4 million, or 14% in average interest-bearing demand and
savings, partially offset by a decrease in more expensive time deposits of $139.5 million, or 8%.

Interest expense on short-term borrowings decreased $2.3 million primarily due to a $543.6 million, or 53%,
decrease in average balances. Interest expense on long-term debt declined $2.9 million; $2.2 million as a result of
the $48.6 million decrease in average balances and $0.7 million due to a 33 basis point decrease in rate. Increased
deposits as well as declines in both the investment and loan portfolios provided funding to deleverage the balance
sheet and decrease outstanding borrowings.

Net interest margin, on a fully taxable equivalent basis, for the year 2010 increased 17 basis points to 3.88% from
3.71% in 2009, primarily due to declines in the cost of interest-bearing liabilities.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

Information appearing in Item 7 of this report under the caption “Market Risk” is incorporated herein by
reference in response to this item.

48

ITEM 8. Financial Statements and Supplementary Data

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

First Commonwealth is responsible for the preparation, the integrity, and the fair presentation of the
Consolidated Financial Statements included in this annual report. The Consolidated Financial Statements and
notes to the financial statements have been prepared in conformity with generally accepted accounting principles
and include some amounts based upon management’s best estimates and judgments.

First Commonwealth’s management is responsible for establishing and maintaining effective internal control
over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f), that is designed to produce
reliable financial statements in conformity with generally accepted accounting principles. Under the supervision
and with the participation of management, including First Commonwealth’s principal executive officer and
principal financial officer, First Commonwealth conducted an evaluation of the effectiveness of internal control
over financial reporting based on the framework in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.

All internal control systems, no matter how well designed, have inherent limitations, including the possibility that
a control can be circumvented and that misstatements due to error or fraud may occur without detection.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.

Based on First Commonwealth’s evaluation under the framework in Internal Control-Integrated Framework,
management concluded that internal control over financial reporting was effective as of December 31, 2011. The
effectiveness of First Commonwealth’s internal control over financial reporting as of December 31, 2011 has
been audited by KPMG LLP, an independent registered public accounting firm, as stated in their attestation
report which is included herein.

First Commonwealth Financial Corporation

Indiana, Pennsylvania

March 5, 2012

/s/ T. MICHAEL PRICE

T. Michael Price
President and Chief Executive Officer

/s/ ROBERT E. ROUT

Robert E. Rout
Executive Vice President, Chief Financial Officer,
and Treasurer

49

ITEM 8. Financial Statements and Supplementary Data (Continued)

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
First Commonwealth Financial Corporation:

We have audited First Commonwealth Financial Corporation’s internal control over financial reporting as of
December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). First Commonwealth Financial
Corporation’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
management’s report on internal control. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, First Commonwealth Financial Corporation maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated statements of financial condition of First Commonwealth Financial Corporation
and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations,
changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2011, and our report dated March 5, 2012 expressed an unqualified opinion on those consolidated
financial statements.

/s/ KPMG LLP

Pittsburgh, Pennsylvania
March 5, 2012

50

ITEM 8. Financial Statements and Supplementary Data (Continued)

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
First Commonwealth Financial Corporation:

We have audited the accompanying consolidated statements of financial condition of First Commonwealth
Financial Corporation and subsidiaries (the Company) as of December 31, 2011 and 2010, and the related
consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the years in
the three-year period ended December 31, 2011. These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of First Commonwealth Financial Corporation and subsidiaries as of December 31, 2011 and
2010, and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2011, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 11 to the Consolidated Financial Statements, in 2009 First Commonwealth Financial
Corporation changed their method of accounting for other-than-temporary impairments of investment securities.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), First Commonwealth Financial Corporation’s internal control over financial reporting as of
December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 5,
2012 expressed an unqualified opinion on the effectiveness of First Commonwealth Financial Corporation’s
internal control over financial reporting.

/s/ KPMG LLP

Pittsburgh, Pennsylvania
March 5, 2012

51

ITEM 8. Financial Statements and Supplementary Data (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

Assets

Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities available for sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans:

Portfolio loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortizing intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Liabilities

Deposits (all domestic):

December 31,

2011

2010

(dollars in thousands, except
share data)

$

74,967
3,511
1,142,776
39,796
13,412

$

69,854
4
967,715
48,859
0

4,043,643
(61,234)

4,218,083
(71,229)

3,982,409
66,755
30,035
159,956
3,843
323,662

4,146,854
66,981
24,700
159,956
5,376
322,543

$5,841,122

$5,812,842

Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 780,377
3,724,307

$ 706,889
3,910,963

4,504,684
312,777
105,750
101,664

207,414
57,704

4,617,852
187,861
105,750
98,748

204,498
52,854

5,082,579

5,063,065

Shareholders’ Equity

Preferred stock, $1 par value per share, 3,000,000 shares authorized, none

issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0

0

Common stock, $1 par value per share, 200,000,000 shares authorized;

105,563,455 shares issued and 104,916,994 shares outstanding at December 31,
2011; 105,515,079 shares issued and 104,846,194 shares outstanding at
December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss), net . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock (646,461 and 668,885 shares at December 31, 2011 and

December 31, 2010, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned ESOP shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . .

105,563
365,868
294,056
2,001

105,515
366,488
291,492
(2,458)

(7,345)
(1,600)

(7,660)
(3,600)

758,543

749,777

$5,841,122

$5,812,842

The accompanying notes are an integral part of these Consolidated Financial Statements

52

ITEM 8. Financial Statements and Supplementary Data (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Interest Income

Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and dividends on investments:

Taxable interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest exempt from federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest Expense

Interest on deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total interest on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Interest Income after Provision for Credit Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest Income

Changes in fair value on impaired securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncredit related gains (losses) on securities not expected to be sold (recognized in other
comprehensive income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service charges on deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance and retail brokerage commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Card related interchange income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives mark to market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Noninterest Expense

Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania shares tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collection and repossession expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other professional fees and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale or write-down of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan processing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Years Ended December 31,

2011

2010

2009

(dollars in thousands, except share data)

$

197,456

$

225,062

$

232,030

33,763
213
49
64

37,915
5,216
73
94

50,591
10,445
208
7

231,545

268,360

293,281

33,496
728
5,568
1,886

7,454

41,678

189,867
55,816

134,051

(425)

425

0
2,185
6,498
14,775
6,376
5,596
2,460
4,155
11,968
(6,687)
10,343

57,669

84,669
14,069
12,517
6,027
5,480
1,534
7,583
5,297
5,490
9,428
2,874
21,858

49,845
1,948
5,593
4,213

9,806

61,599

206,761
61,552

145,209

69,802
4,216
6,170
6,583

12,753

86,771

206,510
100,569

105,941

(2,560)

(72,574)

(6,633)

(9,193)
2,422
5,897
16,968
6,369
5,331
0
824
10,459
141
10,016

49,234

84,988
14,271
12,568
5,671
5,455
2,031
4,430
4,131
7,948
2,715
1,490
25,528

36,389

(36,185)
273
4,805
17,440
7,259
4,442
0
793
8,559
(661)
12,600

19,325

86,059
14,053
12,085
4,687
5,314
2,826
5,010
3,429
10,471
302
2,120
24,795

Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (Loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit) provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

176,826

14,894
(380)

171,226

23,217
239

171,151

(45,885)
(25,821)

Net Income (Loss)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

15,274

$

22,978

$

(20,064)

Average Shares Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average Shares Outstanding Assuming Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Share Data:

Basic Earnings (Loss) Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings (Loss) Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Dividends Declared per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$
$

104,700,227
104,700,393

93,197,225
93,199,773

84,589,780
84,589,780

0.15
0.15
0.12

$
$
$

0.25
0.25
0.06

$
$
$

(0.24)
(0.24)
0.18

The accompanying notes are an integral part of these Consolidated Financial Statements

53

5
4

ITEM 8. Financial Statements and Supplementary Data (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of tax:

Unrealized holding gains on securities arising during
the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncredit related losses on securities not expected to
be sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: reclassification adjustment for gains on

securities included in net income . . . . . . . . . . . . . .

Unrealized gains for postretirement obligations:

Transition obligation . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total other comprehensive income . . . . . . . . . . . . . . . . . .

Total comprehensive income . . . . . . . . . . . . . . . . . . .
Cash dividends declared ($0.12 per share) . . . . . . . . . . . . . . . . .
Net decrease in unearned ESOP shares . . . . . . . . . . . . . . . . . . .
ESOP market value adjustment ($1,053, net of $368 tax

benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount on dividend reinvestment plan purchases . . . . . . . . . .
Tax benefit of stock options exercised . . . . . . . . . . . . . . . . . . . .
Treasury stock acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock reissued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares
Outstanding

Common
Stock

Additional
Paid-in-
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss),
net

Treasury
Stock

Unearned
ESOP
Shares

Total
Shareholders’
Equity

104,846,194

$105,515

$366,488

$291,492

$(2,458)

$(7,660)

$(3,600)

$749,777

(dollars in thousands, except per share data)

15,274

6,323

(276)

(1,420)

1
(169)

(12,558)

(83)
(69)

(685)
(63)
6

1
121

(1,336)
13,760
35,000
23,376

25
23

2,000

(9)
155
169

15,274

6,323

(276)

(1,420)

1
(169)

4,459

19,733
(12,558)
2,000

(685)
(63)
6
(9)
72
126
144

Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . .

104,916,994

$105,563

$365,868

$294,056

$ 2,001

$(7,345)

$(1,600)

$758,543

The accompanying notes are an integral part of these Consolidated Financial Statements.

5
5

ITEM 8. Financial Statements and Supplementary Data (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of tax:

Unrealized holding losses on securities arising

during the period . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncredit related gains on securities not expected to
be sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: reclassification adjustment for losses on

securities included in net income . . . . . . . . . . . . . .

Unrealized gains for postretirement obligations:

Transition obiligation . . . . . . . . . . . . . . . . . . . . .

Net gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total other comprehensive income . . . . . . . . . . . . . . . . . .

Total comprehensive income . . . . . . . . . . . . . . . . . . .
Cash dividends declared ($0.06 per share)
. . . . . . . . . . . . . . . .
Net decrease in unearned ESOP shares . . . . . . . . . . . . . . . . . . .
ESOP market value adjustment ($1,008, net of $352 tax

benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount on dividend reinvestment plan purchases . . . . . . . . . .
Treasury stock acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock reissued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares
Outstanding

Common
Stock

Additional
Paid-in-
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss),
net

Treasury
Stock

Unearned
ESOP
Shares

Total
Shareholders’
Equity

85,151,875

$ 86,600

$301,523

$278,887

$(6,045)

$(16,554)

$(5,600)

$638,811

(dollars in thousands, except per share data)

22,978

(5,446)

4,312

4,434

1

286

(5,306)

(4,899)
(168)
0

(656)
(33)

656
0
64,998

(1,291)
750,842
30,120
18,914,648

0
18,915

2,000

(9)
8,491
412

22,978

(5,446)

4,312

4,434

1

286

3,587

26,565
(5,306)
2,000

(656)
(33)
(9)
4,248
244
83,913

Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . .

104,846,194

$105,515

$366,488

$291,492

$(2,458)

$ (7,660)

$(3,600)

$749,777

The accompanying notes are an integral part of these Consolidated Financial Statements.

5
6

ITEM 8. Financial Statements and Supplementary Data (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued)

Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect from adoption FASB ASC 320-10- 65

($6,497, net of $2,274 tax) . . . . . . . . . . . . . . . . . . . . . . . .

Balance at January 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of tax:

Unrealized holding gains on securities arising during

the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Noncredit related losses on securities not expected to

be sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: reclassification adjustment for losses on

securities included in net loss . . . . . . . . . . . . . . . . . .

Unrealized gains for postretirement obligations:

Transition obligation . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total other comprehensive income . . . . . . . . . . . . . . . . . . .

Total comprehensive income . . . . . . . . . . . . . . . . . . . .
Cash dividends declared ($0.18 per share)
. . . . . . . . . . . . . . . . .
Net decrease in unearned ESOP shares . . . . . . . . . . . . . . . . . . . .
ESOP market value adjustment ($848, net of $297 tax

benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount on dividend reinvestment plan purchases . . . . . . . . . . .
Tax benefit of stock options exercised . . . . . . . . . . . . . . . . . . . . .
Treasury stock acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock reissued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares
Outstanding

Common
Stock

Additional
Paid-in-
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss),
net

Treasury
Stock

Unearned
ESOP
Shares

Total
Shareholders’
Equity

85,050,744

$86,600

$303,008

$309,947

$(21,269)

$(17,907)

$(7,600)

$652,779

(dollars in thousands, except per share data)

(17,907)

(7,600)

652,779

0

85,050,744

86,600

303,008

314,170

4,223

(20,064)

(4,223)

(25,492)

19,848

(23,653)

23,378

1
(127)

(15,219)

0

0
0

(551)
(369)
149
0
(707)
(7)

(4,122)
105,253

0

2,000

(18)
1,191
180

(20,064)

19,848

(23,653)

23,378

1
(127)

19,447

(617)
(15,219)
2,000

(551)
(369)
149
(18)
484
173

Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . .

85,151,875

$86,600

$301,523

$278,887

$ (6,045)

$(16,554)

$(5,600)

$638,811

The accompanying notes are an integral part of these Consolidated Financial Statements.

ITEM 8. Financial Statements and Supplementary Data (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,
2010

2009

2011

Operating Activities

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,274 $ 22,978 $ (20,064)
Adjustments to reconcile net income (loss) to net cash provided by

(dollars in thousands)

operating activities:

Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net losses on securities and other assets . . . . . . . . . . . . . . . . . . . . . . . .
Net amortization (accretion) of premiums and discounts on

securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .

Net amortization of premiums and discounts on long-term debt
Income from increase in cash surrender value of bank owned life

insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease) increase in income taxes payable . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in prepaid FDIC insurance . . . . . . . . . . . . . . . . . .
Other—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . .

Investing Activities

55,816
(1,192)
9,026
9,776

61,552
(4,671)
10,707
8,948

100,569
(29,108)
9,806
35,421

721
(124)

212
(807)

(232)
(2,059)

(5,596)
1,276
(1,423)
(5,362)
5,020
907
84,119

(5,331)
4,188
(966)
1,983
7,273
4,804
110,870

(4,442)
3,812
(2,568)
(2,534)
(25,918)
(5,449)
57,234

Transactions with securities held to maturity:

Proceeds from maturities and redemptions . . . . . . . . . . . . . . . . . . . . . .

0

14,520

14,423

Transactions with securities available for sale:

Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities and redemptions . . . . . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the redemption of FHLB stock . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from bank owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease (increase) in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities . . . . . . . . . . . .

Financing Activities

7,589
143,503
76,914
480,250
414,032
430,115
(723,805) (387,135) (211,467)
0
0
0
9,070
335,165 (317,932)
(6,655)
(90,940)

9,063
238
5,766
23,756
56,181
(4,886)
(8,320)
(79,957) 542,632

2,572
0
0
8,778

62,500
(63,600)
(92,200)
Net increase (decrease) in federal funds purchased . . . . . . . . . . . . . . . . . . .
62,417 (678,871) (117,205)
Net increase (decrease) in other short-term borrowings . . . . . . . . . . . . . . . .
255,671
82,197
(113,090)
Net (decrease) increase in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13,139)
(24,561) (117,142)
Repayments of other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,403
50,000
29,600
Proceeds from issuance of long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . .
0
83,913
144
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . .
(369)
(33)
(63)
Discount on dividend reinvestment plan purchases . . . . . . . . . . . . . . . . . . .
(29,677)
(5,306)
(12,558)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
484
4,248
72
Proceeds from reissuance of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . .
(18)
(9)
(9)
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
149
0
6
Stock option tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,699
4,458 (673,203)
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . .
993
(19,701)
8,620
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . .
Cash and cash equivalents at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
88,566
89,559
69,858
Cash and cash equivalents at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,478 $ 69,858 $ 89,559

The accompanying notes are an integral part of these Consolidated Financial Statements.

57

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Statement of Accounting Policies

General

The following summary of accounting and reporting policies is presented to aid the reader in obtaining a better
understanding of the financial statements and related financial data of First Commonwealth Financial
Corporation and its subsidiaries (“First Commonwealth”) contained in this report.

The financial information is presented in accordance with generally accepted accounting principles and general
practice for financial institutions in the United States of America. In preparing financial statements, management
is required to make estimates and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements. In addition, these estimates
and assumptions affect revenues and expenses in the financial statements and as such, actual results could differ
from those estimates.

Through its subsidiaries, which include one commercial bank, an insurance agency and a financial advisor, First
Commonwealth provides a full range of loan, deposit, trust, insurance and personal financial planning services
primarily to individuals and small to middle market businesses in fifteen counties in central and western
Pennsylvania. First Commonwealth determined it has one business segment.

First Commonwealth is subject to regulations of certain state and federal agencies. These regulatory agencies
periodically examine First Commonwealth for adherence to laws and regulations. As a consequence, the cost of
doing business may be affected.

Basis of Presentation

The accompanying Consolidated Financial Statements include the accounts of First Commonwealth previously
defined above. All material intercompany transactions have been eliminated in consolidation. Certain
reclassifications have been made in the Consolidated Financial Statements for 2010 and 2009 to conform to the
classifications presented for 2011.

Equity investments of less than a majority but at least 20% ownership are accounted for by the equity method
and classified as “Other assets.” Earnings on these investments are reflected in “Other income” on the
Consolidated Statements of Operations, as appropriate, in the period earned.

First Commonwealth’s variable interest entities (“VIEs”) are evaluated under the guidance included in ASU
2009-17. These VIEs include qualified affordable housing projects that First Commonwealth has invested in as
part of its community reinvestment initiatives. We periodically assess whether or not our variable interests in
these VIEs, based on qualitative analysis, provide us with a controlling interest in the VIE. The analysis includes
an assessment of the characteristics of the VIE. We do not have a controlling financial interest in the VIE, which
would require consolidation of the VIE, as we do not have the following characteristics: (1) the power to direct
the activities that most significantly impact the VIE’s economic performance; and (2) the obligation to absorb
losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Securities

Debt securities that First Commonwealth has the positive intent and ability to hold to maturity are classified as
securities held to maturity and are reported at amortized cost adjusted for amortization of premium and accretion
of discount on a level yield basis. Debt and equity securities that are bought and held principally for the purpose
of selling them in the near term are to be classified as trading securities and reported at fair value, with unrealized
gains and losses included in earnings. Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as securities available for sale and are reported at

58

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Statement of Accounting Policies (Continued)

Securities (Continued)

fair value, with unrealized gains and losses that are not related to impairment excluded from earnings and
reported as a component of other comprehensive income, which is included in shareholders’ equity, net of
deferred taxes.

First Commonwealth has securities classified as either held to maturity or available for sale and does not engage
in trading activities. 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 the equity securities.

First Commonwealth conducts a comprehensive review of the investment portfolio on a quarterly basis to
determine whether other-than-temporary impairment has occurred. Issuer-specific securities whose market values
have fallen below their book values are initially selected for more in-depth analysis based on the percentage
decline in value and duration of the decline. Issuer-specific securities include obligations of U.S. Government
agencies and sponsored enterprises, single issue trust preferred securities, corporate debentures and obligations of
states and political subdivisions. Further analysis of these securities includes a review of research reports,
analysts’ recommendations, credit rating changes, news stories, annual reports, impact of interest rate changes
and any other relevant information pertaining to the affected security. Pooled trust preferred collateralized debt
obligations are measured by evaluating all relevant credit and structural aspects, determining appropriate
performance assumptions and performing a discounted cash flow analysis. This evaluation includes detailed
credit, performance and structural evaluations for each piece of collateral. Other factors in the pooled trust
preferred collateralized debt obligations valuation include terms of the structure, the cash flow waterfall (for both
interest and principal), the over collateralization and interest coverage tests and events of default/liquidation.
Based on this review, a determination is made on a case by case basis as to a potential impairment. Declines in
the fair value of individual securities below their cost that are not expected to be recovered will result in write-
downs of the individual securities to their fair value. The related write-downs are included in earnings as
impairment losses.

Loans

Loans are carried at the principal amount outstanding. Unearned income on installment loans and leases is taken
into income on a declining basis, which results in an approximate level rate of return over the life of the loan or
the lease. Interest is accrued as earned. Loans held for sale are carried at the lower of cost or fair value
determined on an individual basis.

First Commonwealth considers a loan to be past due and still accruing interest when payment of interest or
principal is contractually past due but the loan is both well secured and in the process of collection. For
installment, mortgage, term and other loans with amortizing payments that are scheduled monthly, 90 days past
due is reached when four monthly payments are due and unpaid. For demand, time and other multi-payment
obligations with payments scheduled other than monthly, delinquency status is calculated using number of days
instead of number of payments. Revolving credit loans, including personal credit lines and home equity lines, are
considered to be 90 days past due when the borrower has not made the minimum payment for four monthly
cycles.

A loan is placed in nonaccrual status when, based on current information and events, it is probable that First
Commonwealth will be unable to fully collect principal or interest due according to the contractual terms of the
loan. A loan is also placed in nonaccrual status when, based on regulatory definitions, the loan is maintained on a
“cash basis” due to the weakened financial condition of the borrower. When a determination is made to place a
loan in nonaccrual status, all accrued and unpaid interest for the current year is reversed against interest income

59

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Statement of Accounting Policies (Continued)

Loans (Continued)

and uncollected interest for previous years is charged against the allowance for credit losses. Generally,
consumer and residential mortgage loans, which are well-secured and in the process of collection, are not placed
in nonaccrual status. Nonaccrual loans are restored to accrual status when, based on a sustained period of
repayment by the borrower in accordance with the contractual terms of the loan, First Commonwealth expects
repayment of the remaining contractual principal and interest or when the loan otherwise becomes well-secured
and in the process of collection.

First Commonwealth considers a loan to be a troubled debt restructured loan when, for economic or legal reasons
related to the debtor’s financial difficulties, a concession is granted to the debtor that would not otherwise be
considered.

A loan is considered to be impaired when, based on current information and events, it is probable that First
Commonwealth will be unable to collect principal or interest that is due in accordance with contractual terms of
the loan. Impaired loans include nonaccrual loans and troubled debt restructured loans. Loan impairment is
measured based on the present value of expected cash flows discounted at the loan’s effective interest rate or, as
a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is
collateral dependent.

For loans other than those that First Commonwealth expects repayment through liquidation of the collateral,
when the remaining recorded investment in the impaired loan is less than or equal to the present value of the
expected cash flows, income is applied as a reduction to loan principal rather than interest income.

Loans deemed uncollectible are charged off through the allowance for credit losses. Factors considered in
assessing ultimate collectibility include past due status, financial condition of the borrower, collateral values, and
debt covenants including secondary sources of repayment by guarantors. Payments received on previously
charged off loans are recorded as recoveries in the allowance for credit losses.

Loan Fees

Loan origination and commitment fees, net of associated direct costs, are deferred and the net amount is
amortized as an adjustment to the related loan yield on the interest method, generally over the contractual life of
the related loans or commitments.

Other Real Estate Owned

Real estate, other than bank premises, is recorded at the lower of cost or fair value less estimated selling costs at
the time of acquisition. Fair value is determined based on an independent appraisal. Expenses related to holding
the property, net of rental income, are generally charged against earnings in the current period. Depreciation is
not recorded on the other real estate owned properties.

Allowance for Credit Losses

First Commonwealth maintains an allowance for credit losses at a level deemed sufficient to absorb losses that
are inherent in the loan portfolio. First Commonwealth’s management determines and reviews with the Board of
Directors the adequacy 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

60

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Statement of Accounting Policies (Continued)

Allowance for Credit Losses (Continued)

include an assessment of individual problem loans, delinquency and loss experience trends, and other relevant
factors, all of which may be susceptible to significant changes. While allocations are made to specific loans and
pools of loans, the total allowance is available for all credit losses.

The following describes the major loan classifications used in the allowance for credit losses calculation. Other
Assets Especially Mentioned (“OAEM”) loans have potential weaknesses that deserve management’s close
attention. The potential weaknesses may result in deterioration of the repayment prospects or weaken the Bank’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. Loans
classified as OAEM constitute an undue and unwarranted credit risk, but not to the point of being classified as a
substandard risk. Substandard loans are those with a 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 First Commonwealth may also be classified as substandard. Doubtful loans have
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. Although the probability of loss is
extremely high for doubtful loans, the classification of loss is deferred until pending factors, which might
improve the loan, have been determined. Loans rated as doubtful, in whole or in part, are placed in nonaccrual
status.

First Commonwealth consistently applies the following comprehensive methodology and procedure for
determining the allowance at the subsidiary bank level.

Criticized loans on the watch list, which include OAEM, substandard, doubtful, and impaired, are analyzed to
determine the level of probable loss in the credits under current circumstances. The probable loss that is
established for these classified loans is based on careful analysis of the probability the loan will default based on
the loan’s performance, the related collateral value, cash flow considerations and the financial capability of any
guarantor. Watch list loans are managed and monitored by assigned account officers within the special assets
area of First Commonwealth in conjunction with supervision by senior management. A reserve is established for
watch list loans that are classified.

All impaired credits in excess of $100 thousand are individually reviewed quarterly. A specific reserve is
established for impaired loans that is equal to the total amount of probable unconfirmed losses for the impaired
loans that are reviewed. Based on this reserve as a percentage of reviewed loan balances, a reserve is also
established for the impaired loan balances that are not reviewed.

The allowance uses historical charge-off trends to estimate probable unconfirmed losses based on charge-off
history for the greater of the eight most recent quarters or the twenty most recent quarters. The loss emergence
periods, which are the average time period from when a loan becomes delinquent until it is charged off, are
calculated for each loan type and applied to the historical loss percentages. Adjusted historical loss experience
percentages are applied to non-classified loans from the watch list, as well as all other loans not on the watch list,
to obtain the portion of the allowance for credit losses which is based on historical trends. Before applying the
adjusted historical loss experience percentages, loan balances are reduced by the portion of the loan balances
which are subject to guarantee by a government agency.

61

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Statement of Accounting Policies (Continued)

Allowance for Credit Losses (Continued)

Historical delinquency trends are also used when estimating probable losses in the loan portfolio. Each loan
category’s most recent four quarter average delinquency percentage is compared to its twenty quarter average.
The twenty quarter average delinquency level is used in determining probable losses in the portfolio, unless the
four quarter average exceeds the twenty quarter average. In that case, the four quarter average delinquency rate is
more appropriate as it indicates there is currently a higher level of risk in the portfolio compared to historical
levels. A portion of the allowance is obtained by applying the appropriate average delinquency percentage to
non-classified loans from the watch list, as well as all other loans not on the watch list.

An additional allowance may be made by management based on a qualitative analysis of certain factors related to
portfolio risks and economic conditions. Factors considered by management include employment trends,
macroeconomic trends and commercial real estate trends. Portfolio risks include unusual changes or recent trends
in specific portfolios such as unexpected changes in the trends or levels of delinquency. No matter how detailed
an analysis of potential credit losses is performed, these estimates are not precise. Management must make
estimates using assumptions and information that is often subjective and changes rapidly.

Allowance for Off-Balance Sheet Credit Exposures

First Commonwealth maintains an allowance for off-balance sheet credit exposure at a level deemed sufficient to
absorb losses that are inherent to off-balance sheet credit risk. Management determines the adequacy of the
allowance on a quarterly basis charging the provision 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. The
Company’s methodology for assessing the appropriateness of the allowance for off-balance sheet credit exposure
consists of analysis of historical usage trends as well as loss history and probability of default rates related to the
off-balance sheet category. The calculation begins with historical usage trends related to lines of credit as well as
letters of credit and then utilizes those figures to determine the probable usage of available lines. These values
are then adjusted by a determined probability of default as well as a loss given default. This amount is adjusted
quarterly and reported as part of other operating expenses on the Consolidated Statements of Operations.

Bank Owned Life Insurance

First Commonwealth purchased insurance on the lives of certain groups of employees. The policies accumulate
asset values to meet future liabilities including the payment of employee benefits such as health care. Increases in
the cash surrender value are recorded in the Consolidated Statements of Operations. The cash surrender value of
bank owned life insurance is reflected in “Other Assets” on the Consolidated Statements of Financial Condition
in the amount of $167.6 million and $162.2 million at December 31, 2011 and 2010, respectively. Under some of
these policies, the beneficiaries receive a portion of the death benefit. The net present value of the future death
benefits scheduled to be paid to the beneficiaries was $3.6 million and $3.1 million as of December 31, 2011 and
2010, respectively, and is reflected in “Other Liabilities” on the Consolidated Statements of Financial Condition.

Premises and Equipment

Premises and equipment are carried at cost less accumulated depreciation on First Commonwealth’s
Consolidated Statements of Financial Condition. Depreciation is computed on the straight-line and accelerated
methods over the estimated useful life of the asset. A straight-line depreciation method was used for substantially
all furniture and equipment. The straight-line depreciation method was used for buildings and improvements.
Charges for maintenance and repairs are expensed as incurred. Leasehold improvements are expensed over the
term of the lease or the estimated useful life of the improvement, whichever is shorter.

62

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Statement of Accounting Policies (Continued)

Premises and Equipment (Continued)

When developing software, First Commonwealth expenses costs that are incurred during the preliminary project
stage and capitalizes certain costs that are incurred during the application development stage. Once software is in
operation, maintenance costs are expensed over the maintenance period while upgrades that result in additional
functionality or enhancements are capitalized. Training and data conversion costs are expensed as incurred.
Capitalized software development costs and purchased software are amortized on a straight-line basis over a
period not to exceed seven years, except for one software license that is being amortized over ten years.

Goodwill

Intangible assets resulting from acquisitions under the purchase method of accounting consist of goodwill and
other intangible assets (see “Other Intangible Assets” section below). Goodwill is not amortized and is subject to
at least annual assessments for impairment by applying a fair value based test. First Commonwealth reviews
goodwill annually and again at any quarter-end if a material event occurs during the quarter that may affect
goodwill. This review evaluates potential impairment by determining if our fair value has fallen below carrying
value.

Other Intangible Assets

Other intangible assets consist of core deposits and covenants not to compete obtained through acquisitions and
are amortized over their estimated lives using the present value of the benefit of the core deposits and straight-
line methods of amortization. Core deposit intangibles are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable.

Accounting for the Impairment of Long-Lived Assets

First Commonwealth reviews long-lived assets, such as premises and equipment and intangibles for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. These changes in circumstances may include a significant decrease in the market value of an asset or
the extent or manner in which an asset is used. If there is an indication that the carrying amount of an asset may
not be recoverable, future undiscounted cash flows expected to result from the use of the asset are estimated. If
the sum of the expected cash flows is less than the carrying value of the asset, a loss is recognized for the
difference between the carrying value and fair value of the asset. Long-lived assets classified as held for sale are
measured at the lower of their carrying amount or fair value less cost to sell. Depreciation or amortization is
discontinued on long-lived assets classified as held for sale.

Income Taxes

First Commonwealth records taxes in accordance with the asset and liability method of FASB ASC Topic 740,
“Income Taxes,” whereby deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amount of existing assets and liabilities and
their respective tax bases given the provisions of the enacted tax laws. Deferred tax assets are reduced, if
necessary, by the amount of such benefits that are more likely than not expected to be realized based upon
available evidence. In accordance with FASB ASC Topic 740, interest or penalties incurred for taxes will be
recorded as a component of noninterest expense.

Comprehensive Income Disclosures

“Other Comprehensive Income” (comprehensive income, excluding net income) includes the after tax effect of
changes in unrealized holding gains and losses on available-for-sale securities and changes in the funded status of

63

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Statement of Accounting Policies (Continued)

defined benefit postretirement plans. Comprehensive income is reported in the accompanying Consolidated
Statements of Changes in Shareholders’ Equity, net of tax.

Cash and Cash Equivalents

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.

Employee Stock Ownership Plan

Accounting treatment for First Commonwealth’s Employee Stock Ownership Plan (“ESOP”) described in Note
24 “Unearned ESOP Shares” follows FASB ASC Topic 718, “Compensation—Stock Compensation” for ESOP
shares acquired after December 31, 1992 (“new shares”). First Commonwealth’s ESOP borrowed funds are
guaranteed by First Commonwealth. The ESOP shares purchased subject to the debt guaranteed by First
Commonwealth are recorded as a reduction of common shareholders’ equity by recording unearned ESOP
shares. Shares are committed to be released to the ESOP Trust for allocation to plan participants through loan
payments. As the shares are committed to be released, the unearned ESOP shares account is credited for the
average cost of the shares collateralizing the ESOP borrowed funds. Compensation cost is recognized for these
shares in accordance with the provisions of FASB ASC Topic 718 and is based upon the fair market value of the
shares that are committed to be released. Additional paid-in capital is charged or credited for the difference
between the fair value of the shares committed to be released and the cost of those shares to the ESOP.

Dividends on unallocated ESOP shares are used for debt service and are reported as a reduction of debt and
accrued interest payable. Dividends on allocated ESOP shares are charged to retained earnings and allocated or
paid to the plan participants. The average number of common shares outstanding used in calculating earnings per
share excludes all unallocated ESOP shares.

Derivatives and Hedging Activities

First Commonwealth accounts for derivative instruments and hedging activities in accordance with FASB ASC
Topic 815, “Derivatives and Hedging.” All derivatives are evaluated at inception as to whether or not they are
hedging or non-hedging activities, and appropriate documentation is maintained to support the final
determination. First Commonwealth recognizes all derivatives as either assets or liabilities on the Statements of
Financial Condition and measures those instruments at fair value. For derivatives designated as fair value hedges,
changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in
earnings. Any hedge ineffectiveness would be recognized in the income statement line item pertaining to the
hedged item.

When First Commonwealth purchases a portion of a commercial loan that has an existing interest rate swap, it
enters a Risk Participation Agreement with the counterparty and assumes the credit risk of the loan customer related
to the swap. Any fee paid to First Commonwealth as a result of the risk participation agreement is offset by credit
risk of the counterparties and is recognized in the income statement. Credit risk on the risk participation agreements
is determined after considering the risk rating, probability of default and loss of given default of the counterparties.

Management periodically reviews contracts from various functional areas of First Commonwealth to identify
potential derivatives embedded within selected contracts. As of December 31, 2011, First Commonwealth has
interest derivative positions that are not designated as hedging instruments. See Note 7 “Derivatives” for a
description of these instruments.

64

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Statement of Accounting Policies (Continued)

Earnings Per Common Share

Basic earnings per share excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the period less unallocated
ESOP shares.

Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. For all periods presented, the dilutive effect on average shares
outstanding is the result of compensatory stock options outstanding.

Fair Value Measurements

In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” First Commonwealth
groups financial assets and financial liabilities measured at fair value in three levels, based on the markets in
which the assets and liabilities are traded and the reliability of the assumptions 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. Valuations are obtained from readily available pricing sources for market transactions
involving identical assets or liabilities. Level 1 securities include equity holdings comprised of publicly
traded bank stocks which were priced using quoted market prices.

Level 2—Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations
are obtained for identical or comparable assets or liabilities from alternative pricing sources with
reasonable levels of price transparency. Level 2 securities include U.S. Government securities issued
by Agencies and Sponsored Enterprises, Obligations of States and Political Subdivisions, certain
corporate securities, FHLB stock, interest rate derivatives that include interest rate swaps, risk
participation agreements and foreign currency contracts, certain other real estate owned and certain
impaired loans.

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 evaluation 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 select Obligations of States and Political Subdivisions, corporate securities, pooled trust
preferred collateralized debt obligations, nonmarketable equity investments certain other real estate
owned, certain impaired loans, and loans held for sale.

In general, fair values of financial instruments are based upon quoted market prices, where available. If such
quoted market prices are not available, fair value is based upon pricing models that primarily use, as inputs,
observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are
recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and our
creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are
applied consistently over time. See Note 21 “Fair Values of Assets and Liabilities” for additional information.

65

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 2—New Accounting Pronouncements

In April 2011, FASB issued ASU No. 2011-02, “Receivables (Topic 310)—A Creditor’s Determination of
Whether a Restructuring Is a Troubled Debt Restructuring.” The Update specifies that in order to constitute a
restructuring as a troubled debt restructuring, a creditor must conclude that the restructuring constitutes a
concession and that the debtor is experiencing financial difficulties. The amendment clarifies the guidance on a
creditor’s evaluation of whether a concession is granted, whether a debtor is experiencing financial difficulties,
and whether the creditor is precluded from using the effective interest rate test when evaluating whether the
restructuring constitutes a troubled debt restructuring. The amendments in this Update were effective for the first
interim or annual period beginning on or after June 15, 2011, and were applied retrospectively to the beginning
of the annual period of adoption. Adoption of this Update requires additional disclosure under ASU No 2010-20,
“Receivables (Topic 310)—Disclosures about the Credit Quality of Financing Receivables and the Allowance for
Credit Losses.” The adoption of this ASU did not have a material impact on First Commonwealth’s financial
condition or results of operations. There were no transition troubled debt restructured loans resulting from the
issuance of this guidance as management’s evaluation of restructured loans for periods ended March 31, 2011
and June 30, 2011, previously incorporated the considerations of the Update.

In April 2011, the FASB issued ASU 2011-03, “Transferring and Servicing (Topic 860)—Reconsideration of
Effective Control for Repurchase Agreements,” which removes from the assessment of effective control the
criterion of 1) the measure requiring the transferor to have the ability to repurchase or redeem the financial assets
on substantially the agreed terms, even in the event of default by the transferee, and 2) the collateral maintenance
implementation guidance related to that measure. All other criteria applicable to effective control remain
unchanged by the amendments in the Update. This Update is effective for fiscal periods beginning on or after
December 15, 2011. The guidance is prospective and management does not believe the adoption of this ASU will
have a significant impact on First Commonwealth’s financial condition or results of operations.

In April 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820)—Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This Update
changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for
disclosing information about fair value measurements. As a result, the highest and best use and valuation premise
concept should be applied. This Update also amends particular principles or requirements for measuring fair
value or disclosing relevant information. For example, the amendment allows for financial assets with applicable
market and credit risk managed on a basis of net exposure to be excluded from the requirements of Topic 820.
This Update is effective for interim and annual periods beginning after December 15, 2011. The guidance is
prospective and management does not believe the adoption of this ASU will have a significant impact on First
Commonwealth’s financial condition or results of operations.

In September 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220)—Presentation of
Comprehensive Income,” under which an entity has the option to present the total of comprehensive income, the
components of net income, and the components of other comprehensive income, in either a single continuous
statement of comprehensive income or in two separate but consecutive statements. If a separate statement is
preferred, this statement should immediately follow the statement of net income and include components of other
comprehensive income and a total for these items along with total comprehensive income. This Update is
effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. In
December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220)—Deferral of the
Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other
Comprehensive Income in Accounting Standards Update No. 2011-05.” Issuance of this ASU allows FASB time
to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of
accumulated other comprehensive income on the components of net income and other comprehensive income for
all periods presented. While this deliberation is ensuing, companies should continue to report reclassifications out

66

6
7

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 2—New Accounting Pronouncements (Continued)

of accumulated other comprehensive income consistent with requirements in effect before ASU 2011-05. All other provisions are required to be adopted
for fiscal and related interim periods beginning after December 15, 2011. The deferral of the aforementioned classifications is also effective for all fiscal
and related interim periods beginning after December 15, 2011. The guidance is prospective and management does not believe the adoption of this ASU
will have a significant impact on First Commonwealth’s financial condition or results of operations.

In September 2011, the FASB issued ASU 2011-08, “Goodwill and Other (Topic 350)—Testing Goodwill for Impairment.” This Update provides an entity
with the option to assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than
not that the fair value of a reporting unit is less than its carrying amount. If it determined that it is not more likely than not that the fair value of a reporting
unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. Conversely, if the opposite conclusion is reached, then
the first step of the two-step approach must be performed. The Update provides examples of events and circumstances that an entity should consider in
performing its qualitative assessment. This Update is effective for fiscal years beginning after December 15, 2011. The guidance is prospective and
management does not believe the adoption of this ASU will have a significant impact on First Commonwealth’s financial condition or results of
operations.

Note 3—Supplemental Comprehensive Income Disclosures

The following table identifies the related tax effects allocated to each component of other comprehensive income in the Consolidated Statements of
Changes in Shareholders’ Equity for the years ended December 31:

2011

2010

2009

Pretax
Amount

Tax
(Expense)
Benefit

Net of
Tax
Amount

Pretax
Amount

Tax
(Expense)
Benefit

Net of
Tax
Amount

Pretax
Amount

Tax
(Expense)
Benefit

Net of
Tax
Amount

(dollars in thousands)

Unrealized gains (losses) on securities:

Unrealized holding gains (losses) on securities arising during

the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,727 $(3,404) $ 6,323 $(8,377) $ 2,931 $(5,446) $ 30,535 $(10,687) $ 19,848

Noncredit related (losses) gains on securities not expected to

be sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(425)

149

(276)

6,633

(2,321)

4,312

(36,389)

12,736

(23,653)

Less: reclassification adjustment for losses on securities

included in net income (loss)

. . . . . . . . . . . . . . . . . . . . . . . . . .

(2,185)

765

(1,420)

6,822

(2,388)

4,434

35,965

(12,587)

23,378

Unrealized gains for postretirement obligations:

Transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2
(260)

(1)
91

1
(169)

2
440

(1)
(154)

1
286

2
(195)

(1)
68

1
(127)

Total other comprehensive income . . . . . . . . . . . . . . . . . . . . $ 6,859 $(2,400) $ 4,459 $ 5,520 $(1,933) $ 3,587 $ 29,918 $(10,471) $ 19,447

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 4—Supplemental Cash Flow Disclosures

The following table presents information related to cash paid during the year for interest and income taxes as
well as detail on non-cash investing and financing activities for the years ended December 31.

2011

2010

2009

(dollars in thousands)

Cash paid during the year for:

Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$43,303
5,900

$63,501
2,516

$91,267
5,100

Non-cash investing and financing activities:

ESOP loan reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans transferred to other real estate owned and repossessed assets . . . . . . . .
Fair value of loans transferred from held to maturity to available for sale . . .
Loans sold, not settled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross increase in market value adjustment to securities available for sale . . .
Transfer of secruities from held to maturity to available for sale . . . . . . . . . .

2,000
34,269
14,235
0
7,107
0

2,000
11,987
0
0
5,088
22,433

2,000
29,503
0
4,234
30,111
0

Correction of Prior Period Error in Cash Flow

For certain reporting periods in 2010, we erroneously presented the proceeds from the sale of certain available
for sale securities within the “Proceeds from maturities and redemptions” sub-line item of “Transactions with
securities available for sale” included in the Investing Activities section of the Consolidated Statements of Cash
Flows, instead of within the “Proceeds from Sales” sub-line item of “Transactions with securities available for
sale.” In addition, we erroneously presented the proceeds from the call of a held-to-maturity bond within the
“Proceeds from maturities and redemptions” sub-line item of “Transactions with securities available for sale”
included in the Investing Activities section of the Consolidated Statements of Cash Flows instead of within the
“Proceeds from maturities and redemptions” sub-line item of “Transactions with securities held to maturity.”

The errors for the year ended December 31, 2010, have been corrected in the 2010 Consolidated Statements of
Cash Flows presented on page 57 by removing the transactions from the “Proceeds from maturities and
redemptions” sub-line item of “Transactions with securities available for sale” included in the Investing
Activities section of the Consolidated Statements of Cash Flows, and including these transactions within the
“Proceeds from Sales” sub-line item of “Transactions with securities available for sale.” Additionally, the
proceeds from the call of the held-to-maturity bond was reclassified from the “Proceeds from maturities and
redemptions” sub-line item of “Transactions with securities available for sale” included in the Investing
Activities section of the Consolidated Statements of Cash Flows to the “Proceeds from maturities and
redemptions” sub-line item of “Transactions with securities held to maturity.”

We have not amended or restated any prior period filings as this error does not impact our reported net income,
net cash flows, or shareholders’ equity and was not considered material. While the year ended period of 2010 is
corrected in this Form 10-K, the six-month and nine-month periods of 2010 were corrected in the Form 10-Q as
of June 30, 2011 and September 30, 2011, respectively.

68

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 4—Supplemental Cash Flow Disclosures (Continued)

Correction of Prior Period Error in Cash Flow (Continued)

The effects of the correction of this error on the sub-lines within the Investing Activities section of the
Consolidated Statements of Cash Flows for each respective period, is reflected below.

For the Six
Months Ended
June 30, 2010

For the Nine
Months Ended
September 30,
2010

For the Year
Ended
December 31,
2010

(dollars in thousands)

Consolidated Statement of Cash Flows
Investing Activities

Transactions with securities held to maturity

Proceeds from maturities and redemptions

Original . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 13,063
14,520

$ 13,063
14,520

$ 14,376
14,520

Transactions with securities available for sale

Proceeds from sales

Original . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19,019
70,043

Proceeds from maturities and redemptions

Original . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

277,198
224,717

26,754
141,585

460,561
344,273

28,573
143,503

547,761
430,115

In accordance with current presentation in the Consolidated Statements of Cash Flows, we have reclassified $2.6
million related to the redemption of FHLB stock from proceeds from maturities and redemptions of
available-for-sale securities to a separate line item. This reclassification decreases the proceeds from maturities
and redemptions of available-for-sale securities for the year-ended December 31, 2010.

Note 5—Earnings per Share

The following table summarizes the composition of the weighted-average common shares (denominator) used in
the basic and diluted earnings per share computation for the years ending December 31:

2011

2010

2009

Weighted average common shares issued . . . . . . . . . . . . . . . . . . . . . . . .
Average treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Averaged unearned ESOP shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average unearned nonvested shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .

105,550,310
(657,633)
(165,010)
(27,440)

94,388,523
(828,523)
(319,726)
(43,049)

86,600,431
(1,533,228)
(446,211)
(31,212)

Weighted average common shares and common stock equivalents
used to calculate basic earnings per share . . . . . . . . . . . . . . . . . .

Additional common stock equivalents (nonvested stock) used to

calculate diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional common stock equivalents (stock options) used to calculate
diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

104,700,227

93,197,225

84,589,780

119

47

0

2,548

0

0

Weighted average common shares and common stock equivalents
used to calculate diluted earnings per share . . . . . . . . . . . . . . . .

104,700,393

93,199,773

84,589,780

69

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 5—Earnings per Share (Continued)

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 years ended December 31, because to
do so would have been anti-dilutive.

2011

Price Range

2010

Price Range

2009

Price Range

Shares

From

To

Shares

From

To

Shares

From

To

Stock Options . . . . . . . . . . .
Restricted Stock . . . . . . . . .

496,863
22,502

$6.36
5.70

$14.55
6.82

610,594
17,370

$6.36
5.70

$14.55
12.35

728,552
20,103

$ 5.29
10.95

$14.55
12.35

Note 6—Cash and Due from Banks

Regulations of the Board of Governors of the Federal Reserve System impose uniform reserve requirements on
all depository institutions with transaction accounts, such as checking accounts and NOW accounts. Reserves are
maintained in the form of vault cash or balances held with the Federal Reserve Bank. First Commonwealth Bank
maintained average balances of $26.0 million during 2011 and $37.2 million during 2010 with the Federal
Reserve Bank.

Note 7—Derivatives

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 of given default for all counterparties.

We have six 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.

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

The following table depicts the credit value adjustment recorded related to the notional amount of derivatives
outstanding as well as the notional amount of risk participation agreements participated to other banks at
December 31:

Credit value adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notional Amount:

2011

2010

(dollars in thousands)

$ (2,963)

$

(724)

Interest rate derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk participation agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sold credit protection on risk participation agreements . . . . . . . . . . . . . .

187,368
128,098
(22,147)

180,447
125,680
(22,497)

70

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 7—Derivatives (Continued)

The table below presents the amount representing the change in the fair value of derivative assets and derivative
liabilities attributable to credit risk included in “Other income” on the Consolidated Statements of Income for the
years ended December 31:

2011

2010

2009

(dollars in thousands)

Non-hedging interest rate derivatives:

Increase/(decrease) in other income . . . . . . . . . . . . . . . . . . . . . . . . . .

$(6,687)

$141

$(661)

Of the total $6.7 million in credit risk expense recognized in 2011, $4.4 million relates to two interest rate swaps
that were terminated at the end of the fourth quarter. The increase compared to 2010 in risk relates to larger
mark-to-market adjustments in a declining interest rate environment and from the deterioration in the credit risk
of the counterparties (loan customers). The fair value of our derivatives is included in a table in Note 21 “Fair
Values of Assets and Liabilities,” in the line items “Other assets” and “Other liabilities.”

Note 8—Securities Available for Sale

Below is an analysis of the amortized cost and fair values of securities available for sale at December 31:

2011

2010

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

Amortized
Cost

(dollars in thousands)

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

Obligations of U.S.

Government Agencies:
Mortgage-Backed
Securities—
Residential . . . . . . . . . . $

Obligations of U.S.

Government-Sponsored
Enterprises:

Mortgage-Backed
Securities—
Residential . . . . . . . . . .

Mortgage-Backed
Securities-
Commercial

. . . . . . . . .

Other Government—

Sponsored
Enterprises . . . . . . . . . .

Obligations of States and

Political Subdivisions . . . . . .
Corporate Securities . . . . . . . . .
Pooled Trust Preferred
Collateralized Debt
Obligations . . . . . . . . . . . . . .

Total Debt

32,139

$ 4,061

$

(6) $

36,194 $ 36,719

$ 3,874

$

0 $ 40,593

771,196

29,835

0

801,031

618,454

26,513

(2,986)

641,981

193

1

(1)

193

233

1

(1)

233

267,807

444
11,811

973

15
162

(132)

268,648

184,531

0
(562)

459
11,411

47,175
21,226

225

644
494

(869)

183,887

0
(344)

47,819
21,376

54,762

3

(31,785)

22,980

58,780

16

(32,444)

26,352

Securities . . . . . . .
Equities . . . . . . . . . . . . . . . . . .

1,138,352
1,860

35,050
0

(32,486)
0

1,140,916
1,860

967,118
5,137

31,767
337

(36,644)
0

962,241
5,474

Total Securities
Available for
Sale . . . . . . . . . . . . $1,140,212

71

$35,050

$(32,486) $1,142,776 $972,255

$32,104

$(36,644) $967,715

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 8—Securities Available for Sale (Continued)

Mortgage backed securities include mortgage backed obligations of U.S. Government agencies and obligations of
U.S. Government-sponsored enterprises. These obligations have contractual maturities ranging from less than
one year to approximately 30 years and have an anticipated average life to maturity ranging from less than one
year to approximately eight years. 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
effects on earnings and interest rate risk positions.

During 2011, $5.2 million in single issue trust preferred securities and $1.2 million in corporate debentures
owned by a non-bank subsidiary of First Commonwealth were sold in order to reinvest the proceeds in more
liquid assets for that subsidiary. The amounts sold represent the subsidiaries entire portfolio of these investments
and resulted in a net gain of $0.3 million. During the first half of 2011, $3.0 million in single issue trust preferred
securities held by another subsidiary were called, resulting in a gain of $0.1 million. Additionally, during 2011
the Company continued its strategy to liquidate its obligations of states and political subdivisions in order to
mitigate future credit risk and improve its tax position. Investments in obligations of states and political
subdivisions totaled $0.5 million and $47.8 million as of December 31, 2011 and 2010, respectively. This decline
is a result of $4.2 million in maturities and $42.5 million in sales which provided $0.3 million in recognized
gains. As of December 31, 2011, all of the remaining investments in obligations of states and political
subdivisions were classified as available for sale and none were in an unrealized loss position.

Expected maturities will differ from contractual maturities because issuers may have the right to call or repay
obligations with or without call or prepayment penalties. Other fixed income securities within the portfolio also
contain prepayment risk. The amortized cost and fair value of debt securities at December 31, 2011, by
contractual maturity, are shown below:

Amortized
Cost

Estimated
Fair Value

(dollars in thousands)

Due within 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after 1 but within 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after 5 but within 10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after 10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Mortgage-Backed Securities (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9,767
258,483
0
66,574

334,824
803,528

$

9,797
259,310
0
34,391

303,498
837,418

Total debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,138,352

$1,140,916

(a) Mortgage Backed Securities include an amortized cost of $32 million and a fair value of $36 million for

Obligations of U.S. Government agencies issued by Ginnie Mae and Obligations of U.S. Government-
sponsored enterprises issued by Fannie Mae and Freddie Mac which had an amortized cost of $771 million
and a fair value of $801 million.

72

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 8—Securities Available for Sale (Continued)

Proceeds from sale, gross gains (losses) realized on sales, maturities and other-than-temporary impairment
charges related to securities available for sale were as follows for the years ended December 31:

2011

2010

2009

Proceeds from sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gross gains (losses) realized:
Sales Transactions:

(dollars in thousands)
$143,503

$ 7,589

$76,914

Gross gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,368
(258)

$

Maturities and impairment:

Gross gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Other-than-temporary impairment

2,110

75
0
0

75

2,892
(790)

2,102

270
0
(9,193)

$

15
0

15

205
0
(36,185)

(8,923)

(35,980)

Net gains (losses) and impairment

. . . . . . . . . . . . .

$ 2,185

$ (6,821)

$(35,965)

Securities available for sale with an approximate fair value of $668.8 million and $659.5 million were pledged as
of December 31, 2011 and 2010, respectively, to secure public deposits and for other purposes required or
permitted by law.

Note 9—Securities Held to Maturity

There were no held-to-maturity debt securities as of December 31, 2011 and 2010. On June 30, 2010, First
Commonwealth reclassified its entire held-to-maturity portfolio to the available-for-sale portfolio. At the time of
reclassification, the investments had an amortized cost of $22.4 million of which $22.3 million were obligations
of states and political subdivisions and $0.1 million were mortgage backed securities. When the securities were
transferred, two of the obligations of states and political subdivision securities were in an unrealized loss position
totaling $45 thousand, the remaining bonds in that category were in an unrealized gain position of $0.8 million
and all of the mortgage backed securities were in an unrealized gain position. In 2010, other-than-temporary
impairment charges of $45 thousand were recognized on the two states and political subdivision securities that
were in an unrealized loss position when transferred to available-for-sale.

During the years ended December 31, 2010 and 2009, gross gains of $50 thousand and $53 thousand,
respectively, were recognized on investments called.

The transfer of securities from the held-to-maturity portfolio resulted from the implementation of a strategy to
liquidate a portion of the obligations of states and political subdivisions portfolio in order to mitigate future credit
risk and improve our tax position.

Note 10—Other Investments

As a member of the FHLB, First Commonwealth is required to purchase and hold stock in the FHLB to satisfy
membership and borrowing requirements. This stock is restricted in that it can 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

73

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 10—Other Investments (Continued)

price is determined by FHLB membership rules and not by market participants. As of December 31, 2011 and
2010, our FHLB stock totaled $39.8 million and $48.9 million, respectively and is included in “Other
investments” on the Consolidated Statements of Financial Condition.

In December 2008, the FHLB voluntarily suspended dividend payments on its stock, as well as temporarily
discontinued the repurchase of excess stock from members. In October 2010, the FHLB resumed the repurchase
of excess stock from its members by repurchasing the lesser of 5% of the members’ total capital stock
outstanding or its total excess capital stock. Since that time, a similar repurchase has occurred on a quarterly
basis, resulting in $9.1 million and $2.6 million in repurchases during the years ended December 31, 2011 and
2010, respectively. Decisions regarding any future repurchases of excess capital stock will be made by the FHLB
on a quarterly basis. Management reviewed the FHLB’s Form 10-Q for the period ended September 30, 2011
filed with the SEC on November 8, 2011.

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. The decision of whether impairment exists is
a matter of judgment that reflects our view of the FHLB’s long-term performance, which includes factors such as
the following:

•

•

•

•

•

its operating performance;

the severity and duration of declines in the fair value of its net assets related to its capital stock amount;

its commitment to make payments required by law or regulation and the level of such payments in relation
to its operating performance;

the impact of legislative and regulatory changes on the FHLB, and accordingly, on the members of FHLB;
and

its liquidity and funding position.

After evaluating all of these considerations, First Commonwealth concluded that the par value of its investment
in FHLB stock will be recovered. Accordingly, no impairment charge was recorded on these securities for the
year ended December 31, 2011. Our evaluation of the factors described above in future periods could result in the
recognition of impairment charges on FHLB stock.

Note 11—Impairment of Investment Securities

As required by FASB ASC Topic 320, “Investments—Debt and Equity Securities,” credit related other-than-
temporary impairment on debt securities is recognized in earnings while non-credit related other-than-temporary
impairment on debt securities not expected to be sold is recognized in other comprehensive income (“OCI”).
During 2011, there was no impairment recognized on investment securities; there was $0.4 million in non-credit
related gains recorded in OCI on securities previously determined to be impaired. All of the securities for which
other-than-temporary impairment was recorded were classified as available-for-sale securities.

In accordance with FASB ASC Topic 320, at the beginning of 2009, the non-credit related portion of other-than-
temporary impairment losses recognized in prior year earnings was reclassified as a cumulative effect adjustment
that increased retained earnings and decreased accumulated OCI. In 2008, $13.0 million in other-than-temporary
impairment charges were recognized, of which $6.5 million related to non-credit related impairment on debt
securities. Therefore, the cumulative effect adjustment to retained earnings totaled $6.5 million, or $4.2 million
net of tax on January 1, 2009.

74

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 11—Impairment of Investment Securities (Continued)

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.

In the Consolidated Statements of Operations, the “Change in fair value on impaired securities” line represents
the change in fair value of securities impaired in the current or previous periods. The change in fair value
includes both non-credit and credit related gains or losses. Credit related losses occur when the entire amortized
cost of the security will not be recovered. The “Non-credit related (gains) losses on securities not expected to be
sold (recognized in other comprehensive income)” line represents the gains and losses on the securities resulting
from factors other than credit. The non-credit related gain or loss is disclosed in the Consolidated Statements of
Operations and recognized through other comprehensive income. The “Net impairment losses” line represents
the credit related losses recognized in total noninterest income for the related period.

We review our investment portfolio on a quarterly basis for indications of impairment. This review includes
analyzing the length of time and the extent to which the fair value has been lower than the cost, 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. In addition, the risk of
future other-than-temporary impairment may be influenced by additional bank failures, weakness in the U.S.
economy, changes in real estate values and additional interest deferrals in our pooled trust preferred
collateralized debt obligations. Our pooled trust preferred collateralized debt obligations are beneficial interests
in securitized financial assets within the scope of FASB ASC Topic 325, “Investments—Other,” and are
therefore evaluated for other-than-temporary impairment using management’s best estimate of future cash flows.
If these estimated cash flows determine it is probable that an adverse change in cash flows has occurred, then
other-than-temporary impairment would be recognized in accordance with FASB ASC Topic 320. There is a risk
that First Commonwealth will record other-than-temporary impairment charges in the future. See Note 21 “Fair
Values of Assets and Liabilities” for additional information.

The following table presents the gross unrealized losses and estimated fair value at December 31, 2011 by
investment category and time frame for which the securities have been in a continuous unrealized loss position:

Less Than 12 Months

12 Months or More

Total

Estimated
Fair Value

Gross
Unrealized
Losses

Estimated
Fair Value

Gross
Unrealized
Losses

Estimated
Fair Value

Gross
Unrealized
Losses

(dollars in thousands)

Obligations of U.S. Government Agencies:

Mortgage-Backed Securities—Residential . . . . . . . $ 1,086

$(6)

$

16

$

0(a) $ 1,102

$

(6)

Obligations of U.S. Government-Sponsored

Enterprises:
Mortgage-Backed Securities—Residential . . . . . . .
Mortgage-Backed Securities—Commercial . . . . . .
Other Government-Sponsored Enterprises . . . . . . .
Obligations of States and Political Subdivisions . . . .
Corporate Securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Pooled Trust Preferred Collateralized Debt

25
151
55,969
0
4,536

0(a)
(1)
(132)
0
(562)

0
0
0
0
0

0
0
0
0
0

25
151
55,969
0
4,536

0
(1)
(132)
0
(562)

Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0

0

22,927

(31,785)

22,927

(31,785)

Total Securities Available for Sale . . . . . . . . . . . $61,767

$(701)

$22,943

$(31,785)

$84,710

$(32,486)

(a) Gross unrealized losses related to these types of securities are less than $1 thousand.

75

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 11—Impairment of Investment Securities (Continued)

At December 31, 2011, 2% of the total unrealized losses were comprised of fixed income securities issued by
U.S. Government agencies and U.S. Government-sponsored enterprises. Pooled trust preferred collateralized debt
obligations accounted for 98% and corporate fixed income comprised less than one percent.

Corporate securities, which consisted of single issue trust preferred securities, had a total unrealized loss of $400
thousand as of December 31, 2011. Included in this category are single issue trust preferred securities and
corporate debentures issued primarily by money center and large regional banks. As of December 31, 2011, our
single issue trust preferred securities had an amortized cost of $11.8 million and an estimated fair value of $11.4
million. After a review of each of the issuer’s asset quality, earnings trend and capital position, it was determined
that none of these issues were other-than-temporarily impaired. Additionally, all interest payments on these
securities are being made as contractually required.

The following table presents the gross unrealized losses and estimated fair value at December 31, 2010 for
available-for-sale and securities by investment category and time frame for which the securities had been in a
continuous unrealized loss position:

Obligations of U.S. Government Agencies:

Less Than 12 Months

12 Months or More

Total

Estimated
Fair Value

Gross
Unrealized
Losses

Estimated
Fair Value

Gross
Unrealized
Losses

Estimated
Fair Value

Gross
Unrealized
Losses

(dollars in thousands)

Mortgage-Backed Securities—Residential
Mortgage-Backed Securities—Commercial
. . .
Other Government-Sponsored Enterprises . . . .

. . . . $105,304 $(2,986) $
182
126,531

(1)
(869)

0 $
0
0

0 $105,304 $ (2,986)
(1)
0
(869)
0

182
126,531

Obligations of States and Political

Subdivisions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Securities . . . . . . . . . . . . . . . . . . . . . . . .
Pooled Trust Preferred Collateralized Debt

0
4,482

0
(73)

0
5,827

0
(271)

0
10,309

0
(344)

Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0

0

26,286

(32,444)

26,286

(32,444)

Total Securities Available for Sale . . . . . . . . $236,499 $(3,929) $32,113 $(32,715) $268,612 $(36,644)

As of December 31, 2011, the book value of our pooled trust preferred collateralized debt obligations totaled
$54.8 million with an estimated fair value of $23.0 million, which includes securities comprised of 353 banks
and other financial institutions. Two of our pooled securities are senior tranches and the remainder are mezzanine
tranches. Two of the pooled issues, representing $6.1 million of the $54.8 million book value, remain above
investment grade. At the time of initial issue, the subordinated tranches ranged in size from approximately 7% to
35% of the total principal amount of the respective securities and no more than 5% of any pooled security
consisted of a security issued by any one institution. As of December 31, 2011, after taking into account
management’s best estimates of future interest deferrals and defaults, eight of our securities had no excess
subordination in the tranches we own and six of our securities had excess subordination which ranged from 4%
to 303% of the current performing collateral.

76

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 11—Impairment of Investment Securities (Continued)

The following table provides additional information related to our pooled trust preferred collateralized debt
obligations as of December 31, 2011:

Deal

Class

Book
Value

Fair
Value

Unrealized
Gain (Loss)

(dollars in thousands)

Moody’s/
Fitch
Ratings

Number
of Banks

Deferrals
and
Defaults
as a % of
Current
Collateral

Excess
Subordination
as a % of
Current
Performing
Collateral

Senior

Pre TSL I . . . . . . . . . . . . . . . . . .
Pre TSL IV . . . . . . . . . . . . . . . . . Mezzanine
Pre TSL V . . . . . . . . . . . . . . . . . Mezzanine
Pre TSL VI . . . . . . . . . . . . . . . . . Mezzanine
Pre TSL VII . . . . . . . . . . . . . . . . Mezzanine
. . . . . . . . . . . . . . . Mezzanine
Pre TSL VIII
Pre TSL IX . . . . . . . . . . . . . . . . . Mezzanine
Pre TSL X . . . . . . . . . . . . . . . . . Mezzanine
Pre TSL XII . . . . . . . . . . . . . . . . Mezzanine
Pre TSL XIII
. . . . . . . . . . . . . . . Mezzanine
Pre TSL XIV . . . . . . . . . . . . . . . Mezzanine
MMCap I . . . . . . . . . . . . . . . . . .
MMCap I . . . . . . . . . . . . . . . . . . Mezzanine
MM Comm IX . . . . . . . . . . . . . . Mezzanine

Senior

$ 2,290
1,830
50
237
3,986
1,679
2,231
1,342
5,497
11,992
12,693
3,766
841
6,328

$ 2,185
656
53
225
2,399
962
789
765
2,541
3,917
4,288
3,199
407
594

$

(105)
(1,174)
3
(12)
(1,587)
(717)
(1,442)
(577)
(2,956)
(8,075)
(8,405)
(567)
(434)
(5,734)

A2/BBB
Ca/CCC
Caa3/D
Ca/D
Ca/C
C/C
Ca/C
C/C
Ca/C
Ca/C
Ca/C
A3/BBB
Ca/C
Ca/D

24
6
3
5
17
35
48
53
77
63
63
21
21
31

34.57%
27.07
100.00
12.27
54.50
39.85
25.30
44.67
32.36
35.82
32.59
41.79
41.79
46.50

205.93%
82.51
0.00
31.12
0.00
0.00
4.45
0.00
0.00
0.00
14.32
303.07
0.00
0.00

Total . . . . . . . . . . . . . . . . . . . . . .

$54,762

$22,980

$(31,782)

Lack of liquidity in the market for trust preferred collateralized debt obligations, credit rating downgrades and
market uncertainties related to the financial industry are factors contributing to the impairment on these
securities.

On a quarterly basis we evaluate our debt securities for other-than-temporary impairment. In 2011, there were no
credit related other-than-temporary impairment charges recognized on our pooled trust preferred collateralized
debt obligations. When evaluating these investments we determine a credit related portion and a non-credit
related portion of other-than-temporary impairment. The credit related portion is recognized in earnings and
represents the difference between book value and the present value of future cash flows. The non-credit related
portion is recognized in other comprehensive income and represents the difference between the fair value of the
security and the amount of credit related impairment. A discounted cash flow analysis provides the best estimate
of credit related other-than-temporary impairment for these securities.

As of December 31, 2011, none of the pooled trust preferred collateralized debt obligations were considered to be
nonperforming securities, compared to $15.8 million which were considered nonperforming at December 31,
2010. These securities were returned to performing status in 2011 because of evidence supporting management’s
estimate of future cash flows indicating that all remaining principal and interest will be received. Support for
these estimates include: no other-than-temporary impairment charges have been recorded since the third quarter
of 2010, improvement in the underlying collateral of these bonds evidenced by a reduced level of new interest
payment deferrals and principal defaults as well as an increase in actual cures of deferring collateral.

Additional information related to the discounted cash flow analysis follows:

Our pooled trust preferred collateralized debt obligations are measured for other-than-temporary impairment
within the scope of FASB ASC Topic 325 by determining whether it is probable that an adverse change in
estimated cash flows has occurred. Determining whether there has been an adverse change in estimated cash

77

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 11—Impairment of Investment Securities (Continued)

flows from the cash flows previously projected involves comparing the present value of remaining cash
flows previously projected against the present value of the cash flows estimated at December 31, 2011. We
consider the discounted cash flow analysis to be our primary evidence when determining whether credit
related other-than-temporary impairment exists.

Results of a discounted cash flow test are significantly affected by other variables such as the estimate of
future cash flows, credit worthiness of the underlying banks and determination of probability of default of
the underlying collateral. The following provides additional information for each of these variables:

•

•

•

Estimate of Future Cash Flows—Cash flows are constructed in an INTEX cash flow model which
includes each deal’s structural features. For collateral issued by financial institutions over $15 billion in
asset size, we consider the alternative cost of funding and if that rate is less than the current rate being
paid, we incorporate a prepayment in our estimate of future cash flows. The prepayment rates used are
20% in years 2 and 3 and a 2% prepayment rate thereafter. The modeled cash flows are then used to
estimate if all the scheduled principal and interest payments of our investments will be returned.

Credit Analysis—A quarterly credit evaluation is performed for each of the 353 banks comprising the
collateral across the various pooled trust preferred securities. Our credit evaluation considers all
evidence available to us and includes the nature of the issuer’s business, its years of operating history,
corporate structure, loan composition, loan concentrations, deposit mix, asset growth rates, geographic
footprint and local economic environment. Our analysis focuses on profitability, return on assets,
shareholders’ equity, net interest margin, credit quality ratios, operating efficiency, capital adequacy
and liquidity.

Probability of Default—A probability of default is determined for each bank and is used to calculate
the expected impact of future deferrals and defaults on our expected cash flows. Each bank in the
collateral pool is assigned a probability of default for each year until maturity. Currently, any bank that
is in default is assigned a 100% probability of default and a 0% projected recovery rate. All other banks
in the pool are assigned a probability of default based on their unique credit characteristics and market
indicators with a 10% projected recovery rate. For the majority of banks currently in deferral we
assume the bank continues to defer and will eventually default and therefore a 100% probability of
default is assigned. However, for some deferring collateral there is the possibility that they become
current on interest or principal payments at some point in the future and in those cases a probability
that the deferral will ultimately cure is assigned. The probability of default is updated quarterly. As of
December 31, 2011, default probabilities for performing collateral ranged from 0.33% to 75%.

Our credit evaluation provides a basis for determining deferral and default probabilities for each underlying piece
of collateral. Using the results of the credit evaluation, the next step of the process is to look at pricing of senior
debt or credit default swaps for the issuer (or where such information is unavailable, for companies having
similar credit profiles as the issuer). The pricing of these market indicators provides the information necessary to
determine appropriate default probabilities for each bank.

In addition to the above factors, our evaluation of impairment also includes a stress test analysis which provides
an estimate of excess subordination for each tranche. We stress the cash flows of each pool by increasing current
default assumptions to the level of defaults which results in an adverse change in estimated cash flows. This
stressed breakpoint is then used to calculate excess subordination levels for each pooled trust preferred security.
The results of the stress test allows management to identify those pools that are at a greater risk for a future break
in cash flows so that we can monitor banks in those pools more closely for potential deterioration of credit
quality.

78

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 11—Impairment of Investment Securities (Continued)

Our cash flow analysis as of December 31, 2011, indicates that no credit related other-than-temporary
impairment has occurred on our pooled trust preferred securities since December 31, 2010. Based upon the
analysis performed by management as of December 31, 2011, it is probable that eight of our pooled trust
preferred securities are expected to experience principal and interest shortfalls. These securities are identified in
the table on page 77 with 0% “Excess Subordination as a % of Current Performing Collateral.” For the remaining
securities in the table, our analysis as of December 31, 2011 indicates it is probable that we will collect all
contractual principal and interest payments.

The table below provides a cumulative roll forward of credit losses recognized in earnings for debt securities
held and not intended to be sold for the years ended December 31:

2011

2010

2009

Balance, beginning (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit losses on debt securities for which other-than-temporary impairment was

not previously recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Additional credit losses on debt securities for which other-than-temporary

impairment was previously recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increases in cash flows expected to be collected, recognized over the remaining

(dollars in thousands)
$36,161

$ 2,516

$44,850

0

0

0

28,163

8,689

5,482

life of the security (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(114)

0

0

Balance, ending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$44,736

$44,850

$36,161

(a) The beginning balance represents credit related losses included in other-than-temporary impairment charges

recognized on debt securities in prior periods.

(b) Represents the increase in cash flows recognized in interest income during the period.

On a quarterly basis, management evaluates equity securities for other-than-temporary impairment. For the years
ended December 31, 2011 and 2009, there was no impairment recognized on equity securities. In 2010, $0.4
million in other than-temporary impairment charges were recognized on equity securities related to three
Pennsylvania based financial institutions. When evaluating equity investments for other-than-temporary
impairment we review the severity and duration of decline in fair value, research reports, analysts’
recommendations, credit rating changes, news stories, annual reports, regulatory filings, impact of interest rate
changes and other relevant information. There were no equity securities in an unrealized loss position as of
December 31, 2011 and 2010.

Note 12—Loans and Allowance for Credit Losses

The following table provides outstanding balances related to each of our loan types as of December 31:

Commercial, financial, agricultural and other . . . . . . . . . . . . . . . . . . . . . . .
Real estate construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to individuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 996,739
76,564
1,137,059
1,267,432
565,849

$ 913,814
261,482
1,127,273
1,354,074
561,440

Total loans net of unearned income . . . . . . . . . . . . . . . . . . . . . . . . . .

4,043,643

$4,218,083

2011

2010

(dollars in thousands)

79

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 12—Loans and Allowance for Credit Losses (Continued)

During 2011, outstanding loans decreased $174.4 million or 4% compared to balances outstanding at
December 31, 2010. Decreases were experienced in the real estate construction and commercial real estate
categories and can be attributed to our focus of managing down our large credit exposures as well as weaker loan
demand. In an effort to do this, $13.4 million in real estate commercial loans were transferred to loans held for
sale accounting for a small portion of the decrease in loans.

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

No change since origination in credit rating of borrower. Acceptable levels of risk exist in the
relationship.

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 Bank’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 use of creditworthiness categories to grade loans permits management’s use of migration analysis to estimate
a portion of credit risk. The company’s internal creditworthiness grading system is based on experiences with
similarly graded loans. Category ratings are reviewed each quarter, at which time management analyzes the
results, as well as other external statistics and factors, to track the migration of loan performance. Loans that
migrate towards higher risk rating levels generally have an increased risk of default, whereas, loans that migrate
toward lower ratings generally will result in a lower risk factor being applied to those related loan balances.

The following tables represent our credit risk profile by creditworthiness category for the years ended
December 31:

2011

Commercial,
financial,
agricultural
and other

Real estate
construction

Residential
real estate

Commerical
real estate

Loans to
individuals

Total

(dollars in thousands)

Pass . . . . . . . . . . . . . . . . . . . . . . .
Non-Pass

$904,057

$44,914

$1,126,143

$1,110,664

$565,842

$3,751,620

OAEM . . . . . . . . . . . . . . . . .
Substandard . . . . . . . . . . . . .
Doubtful . . . . . . . . . . . . . . . .

Total Non-Pass . . . . . .

27,627
60,114
4,941

92,682

4,238
21,701
5,711

31,650

5,484
5,432
0

61,855
94,913
0

10,916

156,768

7
0
0

7

99,211
182,160
10,652

292,023

Total . . . . . . . . . . . . . . . . . . . . . . .

$996,739

$76,564

$1,137,059

$1,267,432

$565,849

$4,043,643

80

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 12—Loans and Allowance for Credit Losses (Continued)

Credit Quality Information (Continued)

2010

Commercial,
financial,
agricultural
and other

Real estate
construction

Residential
real estate

Commerical
real estate

Loans to
individuals

Total

(dollars in thousands)

Pass . . . . . . . . . . . . . . . . . . . . . . .
Non-Pass

$778,260

$181,348

$1,115,825

$1,062,400

$561,360

$3,699,193

OAEM . . . . . . . . . . . . . . . . .
Substandard . . . . . . . . . . . . .
Doubtful . . . . . . . . . . . . . . . .

54,318
81,236
0

Total Non-Pass . . . . . .

135,554

10,845
60,712
8,577

80,134

6,198
5,250
0

11,448

82,361
209,313
0

291,674

6
74
0

80

153,728
356,585
8,577

518,890

Total . . . . . . . . . . . . . . . . . . . . . . .

$913,814

$261,482

$1,127,273

$1,354,074

$561,440

$4,218,083

Portfolio Risks

Credit quality of our loan portfolio represents significant risk to our earnings, capital, regulatory agency
relationships, investment community and shareholder returns. First Commonwealth devotes a substantial amount
of resources managing this risk primarily through our credit administration department that develops and
administers policies and procedures for underwriting, maintaining, monitoring and collecting activities. Credit
administration is independent of lending departments and oversight is provided by the credit committee of the
First Commonwealth Board of Directors.

The credit quality of all bank loan portfolios was negatively impacted in recent years by the economic recession.
First Commonwealth’s loan portfolio incurred significant stress during the past three years in commercial real
estate and real estate construction loans. Both in 2010 and 2009, many of the newly identified credit issues were
out-of-market and generally of larger size in overvalued real estate markets, such as Nevada, Florida, and
Arizona, and higher risk type projects, such as condominiums, resorts and water parks. Deterioration of collateral
values related to these loans continued in 2011 as we worked to resolve many of these credits.

Credit quality measures improved with criticized loans or loans designated OAEM, substandard, impaired or
doubtful decreasing $226.9 million, or 44%, from December 31, 2010 with a current outstanding balance of
$292.0 million at December 31, 2011. These loans comprise 7% of the total portfolio in comparison to 12% in
the prior year. Further indications of improvement in credit quality can be seen in the $7.9 million, or 18%,
decrease in delinquency on accruing loans. As of December 31, 2011, nonaccrual loans decreased $37.7 million,
or 32%, compared to December 31, 2010 as a result of charge-offs, paydowns, and payoffs, as well as transfers to
held for sale. Total charge-offs for the year ended December 31, 2011 were $68.3 million, including charge-offs
of $9.5 million recognized on loans transferred to held for sale. Total charge-offs for the year ended
December 31, 2010 were $75.3 million.

Criticized loans have been evaluated with respect to the adequacy of the allowance for credit losses which we
believe is adequate at this time. However, changes in economic conditions, interest rates, borrower financial
condition, delinquency trends or previously established fair values of collateral factors could significantly change
those judgmental estimates. The credit administration department continually monitors and evaluates those
evolving factors in order to adjust the allowance for credit losses.

81

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 12—Loans and Allowance for Credit Losses (Continued)

Portfolio Risks (Continued)

Our local markets of western Pennsylvania, which comprise 91% of our loan portfolio, have not been as intensely
affected by the most recent economic recession as some other regions of the country and are evidencing a quicker
economic recovery. We believe adhering to tighter geographic markets and credit standards will improve
ongoing credit quality in the portfolios.

Risk factors associated with commercial real estate and construction related loans are monitored closely since
this is an area that represents the most significant portion of the loan portfolio and has experienced the most
stress during the economic downturn and has evidenced little recovery strength.

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
December 31. 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.

30 - 59
days past
due

60 - 89
days past
due

2011

90 days
and
greater
and still
accruing Nonaccrual

Total past
due and
nonaccrual

(dollars in thousands)

Current

Total

Commercial, financial,

agricultural and other . . . . .
Real estate construction . . . . .
Residential real estate . . . . . .
Commercial real estate . . . . .
Loans to individuals . . . . . . .

$ 5,433
0
7,144
3,671
2,952

$ 824
180
2,100
1,241
962

$

287
0
8,767
157
1,804

$33,459
14,911
3,153
26,953
0

$ 40,003
15,091
21,164
32,022
5,718

$ 956,736
61,473
1,115,895
1,235,410
560,131

$ 996,739
76,564
1,137,059
1,267,432
565,849

Total . . . . . . . . . . . . . . . .

$19,200

$5,307

$11,015

$78,476

$113,998

$3,929,645

$4,043,643

30 - 59
days past
due

60 - 89
days past
due

2010

90 days
and
greater
and still
accruing Nonaccrual

Total past
due and
nonaccrual

(dollars in thousands)

Current

Total

Commercial, financial,
agricultural and other

. . . .
Real estate construction . . . . .
Residential real estate . . . . . .
Commercial real estate . . . . .
Loans to individuals . . . . . . .

$ 2,195
363
8,322
5,076
2,745

$

513
2,279
2,545
5,302
848

$

731
0
10,144
459
1,869

$ 25,586
44,670
2,249
43,586
60

$ 29,025
47,312
23,260
54,423
5,522

$ 884,789
214,170
1,104,013
1,299,651
555,918

$ 913,814
261,482
1,127,273
1,354,074
561,440

Total

. . . . . . . . . . . . . . .

$18,701

$11,487

$13,203

$116,151

$159,542

$4,058,541

$4,218,083

82

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 12—Loans and Allowance for Credit Losses (Continued)

Nonaccrual Loans

The previous table summarizes 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, 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.

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 become 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 doubtful.

Impaired Loans

Management considers loans to be impaired when, based on current information and events, it is determined that
the company will probably not be able to collect all amounts due according to the loan contract, including
scheduled interest payments. Determination of impairment is treated the same across all loan segments. When
management identifies a loan as impaired, the impairment 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 or repayment for
the loan is the operation or liquidation of collateral. When the loan is collateral dependent, the appraised value
less cost to sell is utilized. If management determines the value of the impaired loan is less than the recorded
investment in the loan, impairment is recognized through an allowance estimate or a charge-off to the allowance.

When the ultimate collectability of the total principal of an impaired 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 an impaired 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.

Nonperforming loans decreased $5.3 million to $112.2 million at December 31, 2011 compared to $117.5 million
at December 31, 2010. Included in the 2011 total of nonperforming loans is $13.4 million of loans held for sale.
While these loans are considered to be nonperforming, they are not taken into consideration when determining
the allowance for credit losses as they are carried at the lower of cost or fair value. Nonperforming loans at
December 31, 2011 included an $11.3 million loan for a waste management company, which was classified as a
troubled debt restructured loan. This loan was paid off in full in January 2012.

Unfunded commitments related to nonperforming loans were $6.7 million and $13.1 million at December 31,
2011 and 2010, respectively. An off balance sheet reserve of $0.2 million and $0.6 million was established for
these commitments at December 31, 2011 and 2010.

Significant nonaccrual loans as of December 31, 2011 include the following;

$19.9 million, the remaining portion of a $44.1 million unsecured loan to a western Pennsylvania real
estate developer. This loan was originated in the first quarter of 2004 and was placed in nonaccrual
status in the fourth quarter of 2009. A settlement plan with the borrower and three other lenders was
reached in the fourth quarter of 2010 and resulted in an $8.0 million principal payment and a $15.4
million partial charge-off.

$16.7 million commercial real estate loan for a real estate developer in eastern Pennsylvania. This loan
was originated in the third quarter of 2007 and restructured in the fourth quarter of 2011 and resulted in
a charge-off of $4.2 million. The most recent appraisal for the real estate collateral was completed in
the third quarter of 2011.

•

•

83

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 12—Loans and Allowance for Credit Losses (Continued)

Impaired Loans (Continued)

•

•

•

$10.3 million to an information technology company in Maryland. This loan was originated in the
fourth quarter of 2007 and was placed in nonaccrual in the second quarter of 2011.

$5.7 million, the remaining portion of a $20.8 million construction loan for a Florida condominium
project. This loan was originated in the second quarter of 2007. Charge-offs of $15.1 million have been
recorded on this loan. The most recent appraisal for the real estate collateral was completed in the
fourth quarter of 2011.

$4.1 million commercial real estate loan for retail development in western Pennsylvania. This loan was
originated in the third quarter of 2008 and transferred to held for sale in the fourth quarter of 2011 and
a $2.7 million charge-off has been recorded on this loan. The most recent appraisal for the real estate
collateral was completed in the third quarter of 2011. When transferred to held for sale, the fair value
of this loan was determined by a discounted cash flow analysis.

The following tables include the recorded investment and unpaid principal balance for impaired loans with the
associated allowance amount, if applicable, as of December 31, 2011 and 2010. Also presented are the average
recorded investment in impaired loans and the related amount of interest recognized while the loan was
considered impaired for the years ended December 31, 2011, 2010 and 2009. Average balances are calculated
based on month-end balances of the loans for the period reported.

With no related allowance recorded:

Commercial, financial, agricultural and other . . .
Real estate construction . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . .
Loans to individuals . . . . . . . . . . . . . . . . . . . . . . .

Subtotal
With an allowance recorded:

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commercial, financial, agricultural and other . . .
Real estate construction . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . .
Loans to individuals . . . . . . . . . . . . . . . . . . . . . . .

Subtotal

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

2011

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest
Income
Recognized

(dollars in thousands)

$ 2,010
10,814
3,125
36,777
0

52,726

34,056
6,298
955
4,717
0

46,026

$

3,418
20,161
3,513
41,974
0

69,066

34,341
21,402
955
4,863
0

61,561

$

$

0
0
0
0
0

0

9,069
2,960
93
1,114
0

13,236

3,887
23,254
2,702
35,817
10

65,670

30,456
14,465
615
28,716
0

74,252

$

20
10
9
799
0

838

152
0
7
396
0

555

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$98,752

$130,627

$13,236

$139,922

$1,393

84

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 12—Loans and Allowance for Credit Losses (Continued)

Impaired Loans (Continued)

2010

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest
Income
Recognized

(dollars in thousands)

With no related allowance recorded:

Commercial, financial, agricultural and other . . .
Real estate construction . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . .
Loans to individuals . . . . . . . . . . . . . . . . . . . . . . .

$

Subtotal
With an allowance recorded:

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commercial, financial, agricultural and other . . .
Real estate construction . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . .
Loans to individuals . . . . . . . . . . . . . . . . . . . . . . .

Subtotal

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,963
14,319
1,961
22,970
60

42,273

23,118
30,351
344
21,401
0

75,214

$

5,745
62,317
2,534
23,830
125

94,551

38,940
34,954
344
21,626
0

95,864

$

$

0
0
0
0
0

0

6,709
11,855
56
5,287
0

23,907

6,051
35,898
3,165
24,198
58

69,370

43,778
16,641
237
10,711
0

71,367

$ 0
0
0
12
0

12

14
0
0
4
0

18

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$117,487

$190,415

$23,907

$140,737

$30

2009

Average
Recorded
Investment

Interest
Income
Recognized

(dollars in thousands)

With no related allowance recorded:

Commercial, financial, agricultural and other . . . . . . . . . . . . . . . . . . . . .
Real estate construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to individuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$13,248
26,016
3,740
13,891
14

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56,909

With an allowance recorded:

Commercial, financial, agricultural and other . . . . . . . . . . . . . . . . . . . . .
Real estate construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to individuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,502
16,352
339
4,741
0

26,934

$ 7
0
0
0
0

7

0
0
0
6
0

6

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$83,843

$13

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 alternate financing sources.

85

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 12—Loans and Allowance for Credit Losses (Continued)

Impaired Loans (Continued)

As a result of adopting the amendments in ASU 2011-02, all restructurings that occurred on or after January 1,
2011 were assessed for identification as troubled debt restructurings considering the new guidance. No additional
troubled debt restructurings were identified for loans for which the allowance for credit losses would have
previously been measured under a general allowance for credit losses methodology.

The following table provides detail as to the total troubled debt restructured loans and total commitments
outstanding on troubled debt restructured loans as of December 31:

2011

2010

2009

(dollars in thousands)

Troubled debt restructured loans

Accrual status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonaccrual status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$20,276
44,841

$ 1,336
31,410

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$65,117

$32,746

Commitments

Letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unused lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,580
42

$11,321
1,095

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,622

$12,416

$619
0

$619

$

$

0
0

0

The outstanding commitments as of December 31, 2011 and 2010 are primarily committed to one loan
relationship that paid off in full in January 2012.

During 2011, a $2.7 million charge-off was recorded in relation to the transfer of one of the loans included in
commercial real estate in the table below to held for sale. The remaining balance of this loan is $4.1 million.
Three commercial real estate loans, totaling $10.2 million, were classified as troubled debt restructured loans
during 2011 and subsequently paid off prior to year end. In addition, $5.6 million was charged-off in the
restructuring of one relationship modified during the fourth quarter. The remaining balance of the loans included
in this relationship is $18.5 million. The remainder of changes in loan balances for 2011 between the
pre-modification balance and the post-modification balance is due to customer payments.

During 2010, $15.4 million in debt forgiveness was granted to a Pennsylvania real estate developer. The
remaining changes between pre-modification balances and post-modification balances during 2010 are due to
customer payments.

During 2009, all decreases in balances between the pre-modification and post-modification balance are due to
customer payments.

86

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 12—Loans and Allowance for Credit Losses (Continued)

Impaired Loans (Continued)

The following tables provide detail, including specific reserve and reasons for modification, related to loans
identified as troubled debt restructurings during the years ending December 31:

Reason for Modification

2011

Number
of
Contracts

Extend
Maturity

Modify
Rate

Modify
Payments

Total
Pre-Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Specific
Reserve

(dollars in thousands)

Commercial, financial,

agricultural and other . . . . .
Real estate construction . . . . .
Residential real estate . . . . . . .
Commercial real estate . . . . . .

Total . . . . . . . . . . . . . . . .

13
6
10
22

51

$

100
2,554
0
17,202

$

475
86
515
24,226

$2,218
0
601
2,311

$19,856

$25,302

$5,130

$ 2,793
2,640
1,116
43,739

$50,288

$ 2,749
2,852
1,100
25,292

$ 743
0
65
507

$31,993

$1,315

Reason for Modification

2010

Number
of
Contracts

Extend
Maturity

Modify
Rate

Modify
Payments

Total
Pre-Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Specific
Reserve

(dollars in thousands)

Commercial, financial,
agricultural and other

. . . . .
Real estate construction . . . . .
Residential real estate . . . . . . .
Commercial real estate . . . . . .

7
2
2
4

Total

. . . . . . . . . . . . . . . .

15

$250
109
0
0

$359

$

105
2,070
13
10,685

$36,591
0
57
241

$12,873

$36,889

$36,946
2,179
70
10,926

$50,121

$21,180
1,051
67
9,870

$4,972
0
0
3

$32,168

$4,975

Reason for Modification

2009

Number
of
Contracts

Extend
Maturity

Modify
Rate

Modify
Payments

Total
Pre-Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Specific
Reserve

(dollars in thousands)

Commercial real estate . . . . . . . .

1

$0

$506

$0

$506

$503

$255

The troubled debt restructurings included in the above tables are also included in the impaired loan tables
provided earlier in this footnote. Loans defined as modified due to a change in rate include loans that were
modified for a change in rate as well as a reamortization of the principal and an extension of the maturity. For the
years ended December 31, 2011, 2010 and 2009, $25.2 million, $0.1 million and $0.5 million, respectively, of
total rate modifications represent loans with modifications to the rate as well as payment due to reamortization.

A troubled debt restructuring is considered to be in default when a restructured loan is 90 days or more past due.
As of December 31, 2011, one commercial real estate loan, restructured during the first quarter of 2011 with a

87

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 12—Loans and Allowance for Credit Losses (Continued)

Impaired Loans (Continued)

current recorded balance of $4.1 million, was considered to be in default. As of December 31, 2011, this loan
was transferred to held for sale. As of December 31, 2010 and 2009, there were no loans restructured within the
preceding twelve months which were considered to be in default.

The following tables provide detail related to the allowance for credit losses for the years ended December 31:

2011

Commercial,
financial,
agricultural
and other

Real estate
construction

Residential
real estate

Commercial
real estate

Loans to

individuals Unallocated

Total

(dollars in thousands)

Allowance for credit losses:

Beginning Balance . . . . . . . .
Charge-offs . . . . . . . . . .
Recoveries . . . . . . . . . . .
Provision . . . . . . . . . . . .

$ 21,700
(7,114)
473
3,141

$ 18,002
(28,886)
955
16,685

Ending Balance . . . . . . . . . . .

$ 18,200

$ 6,756

Ending balance: individually
evaluated for impaired . . .

Ending balance: collectively

$

9,069

$ 2,960

$

$

$

5,454 $
(4,107)
132
6,758

16,913 $
(24,861)
349
26,560

4,215
(3,325)
573
2,781

$4,945
0
0
(109)

8,237 $

18,961 $

4,244

$4,836

93 $

1,114 $

0

$

0

$

$

$

71,229
(68,293)
2,482
55,816

61,234

13,236

evaluated for impaired . . .

9,131

3,796

8,144

17,847

4,244

4,836

47,998

Loans:

Ending balance . . . . . . . . . . .
Ending balance: individually
evaluated for impaired . . .

Ending balance: collectively

996,739

76,564

1,137,059

1,267,432

565,849

4,043,643

37,639

14,667

2,606

39,832

0

94,744

evaluated for impaired . . .

959,100

61,897

1,134,453

1,227,600

565,849

3,948,899

2010

Commercial,
financial,
agricultural
and other

Real estate
construction

Residential
real estate

Commercial
real estate

Loans to

individuals Unallocated

Total

(dollars in thousands)

Allowance for credit losses:

Beginning Balance . . . . . . . .
Charge-offs . . . . . . . . . .
Recoveries . . . . . . . . . . .
Provision . . . . . . . . . . . .

$ 31,369
(22,293)
2,409
10,215

$ 18,224
(41,483)
0
41,261

Ending Balance . . . . . . . . . . .

$ 21,700

$ 18,002

Ending balance: individually
evaluated for impaired . . .

Ending balance: collectively

$

6,709

$ 11,855

$

$

$

5,847 $
(5,226)
252
4,581

17,526 $
(2,466)
163
1,690

4,731
(3,841)
523
2,802

5,454 $

16,913 $

4,215

$3,942
0
0
1,003

$4,945

56 $

5,287 $

0

$

0

$

$

$

81,639
(75,309)
3,347
61,552

71,229

23,907

evaluated for impaired . . .

14,991

6,147

5,398

11,626

4,215

4,945

47,322

Loans:

Ending balance . . . . . . . . . . .
Ending balance: individually
evaluated for impaired . . .

Ending balance: collectively

913,814

261,482

1,127,273

1,354,074

561,440

25,694

44,485

832

42,863

0

evaluated for impaired . . .

888,120

216,997

1,126,441

1,311,211

561,440

4,218,083

113,874

4,104,209

88

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 12—Loans and Allowance for Credit Losses (Continued)

Impaired Loans (Continued)

2009

Commercial,
financial,
agricultural
and other

Real estate
construction

Residential
real estate

Commercial
real estate

Loans to

individuals Unallocated

Total

(dollars in thousands)

Allowance for credit losses:

Beginning Balance . . . . . . . . $
Charge-offs . . . . . . . . . .
Recoveries . . . . . . . . . . .
Provision . . . . . . . . . . . .

17,558
(20,536)
448
33,899

$ 12,961
(36,892)
0
42,155

Ending Balance . . . . . . . . . . . $

31,369

$ 18,224

Ending balance: individually

evaluated for impaired . . . $

19,635

$ 11,886

Ending balance: collectively

$

$

$

4,347 $
(4,604)
81
6,023

9,424 $
(7,302)
914
14,490

4,195
(4,378)
580
4,334

$4,274
0
0
(332)

5,847 $

17,526 $

4,731

$3,942

124 $

1,621 $

0

$

0

$

$

$

52,759
(73,712)
2,023
100,569

81,639

33,266

evaluated for impaired . . .

11,734

6,338

5,723

15,905

4,731

3,942

48,373

Loans:

Ending balance . . . . . . . . . . .
Ending balance: individually
evaluated for impaired . . .

Ending balance: collectively

1,127,320

428,744

1,202,386

1,320,715

557,336

51,256

68,242

928

23,748

0

evaluated for impaired . . .

1,076,064

360,502

1,201,458

1,296,967

557,336

4,636,501

144,174

4,492,327

Note 13—Variable Interest Entities

As defined by FASB ASC 810-10, “Consolidation,” a Variable Interest Entity (“VIE”) is a corporation,
partnership, trust or any other legal structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the
entity to support its activities. Under ASC 810-10, an entity that holds a variable interest in a VIE is required to
consolidate the VIE if the entity is deemed to be the primary beneficiary, which generally means it is subject to a
majority of the risk of loss from the VIE’s activities, is entitled to receive a majority of the entity’s residual
returns, or both.

First Commonwealth’s VIEs are evaluated under the guidance included in ASU 2009-17. These VIEs include
qualified affordable housing projects that First Commonwealth has invested in as part of its community
reinvestment initiatives. We periodically assess whether or not our variable interests in these VIEs, based on
qualitative analysis, provide us with a controlling interest in the VIE. The analysis includes an assessment of the
characteristics of the VIE. We do not have a controlling financial interest in the VIE, which would require
consolidation of the VIE, as we do not have the following characteristics: (1) the power to direct the activities
that most significantly impact the VIE’s economic performance; and (2) the obligation to absorb losses or the
right to receive benefits from the VIE that could potentially be significant to the VIE.

First Commonwealth’s maximum potential exposure is equal to its carrying value and is summarized in the table
below as of December 31:

Low Income Housing Limited Partnership Investments . . . . . . . . . . . . . . . . . . . .

2011

2010

(dollars in thousands)
$925
$667

89

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 14—Commitments and Letters of Credit

First Commonwealth is a party to financial instruments with off-balance sheet risk in the normal course of
business to meet the financial needs of its customers. These financial instruments include commitments to extend
credit, standby letters of credit and commercial letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in the statements of financial
condition. First Commonwealth’s exposure to credit loss in the event of nonperformance by the other party of the
financial instrument for commitments to extend credit, standby letters of credit and commercial letters of credit is
represented by the contract or notional amount of those instruments. First Commonwealth uses the same credit
policies for underwriting all loans, including these commitments and conditional obligations.

As of December 31, 2011 and 2010, First Commonwealth did not own or trade other financial instruments with
significant off-balance sheet risk including derivatives such as futures, forwards, option contracts and the like,
although such instruments may be appropriate to use in the future to manage interest rate risk. See Note 7
“Derivatives” for a description of interest rate swaps provided to customers.

The following table identifies the notional amount of those instruments at December 31:

2011

2010

(dollars in thousands)

Financial instruments whose contract amounts represent credit risk:

Commitments to extend credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial letters of credit

$1,495,009
53,689
76,371
1,297

$1,471,692
64,348
79,140
20

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future cash requirements. First
Commonwealth evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by First Commonwealth upon extension of credit, is based on management’s credit
evaluation of the counterparty. Collateral that is held varies but may include accounts receivable, inventory,
property, plant and equipment, and residential and income-producing commercial properties.

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. Those guarantees are primarily
issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loan facilities to customers.

The current notional amounts outstanding at December 31, 2011 include financial standby letters of credit of $3.2
million, performance standby letters of credit of $4.9 million and commercial letters of credit of $1.0 million
issued during 2011. A liability of $0.1 million has been recorded as of December 31, 2011 and 2010, 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 in these commitments resulted
in the recording of a liability of $1.5 million and $1.4 million as of December 31, 2011 and 2010, respectively.
The credit risk evaluation incorporated probability of default, loss given default and estimated utilization for the
next twelve months for each loan category and the letters of credit.

90

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 15—Premises and Equipment

Premises and equipment are described as follows:

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .

Total premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Estimated
Useful Life

2011

2010

Indefinite
10-50 years
5-40 years
3-10 years
3-10 years

(dollars in thousands)
$ 12,513
81,072
14,536
79,722
33,479

$ 11,894
79,577
15,740
83,681
29,770

221,322
154,567

220,662
153,681

$ 66,755

$ 66,981

Depreciation related to premises and equipment included in noninterest expense for the years ended
December 31, 2011, 2010 and 2009 amounted to $8.3 million, $8.6 million and $8.5 million, respectively.

First Commonwealth leases various premises and assorted equipment under non-cancelable agreements. Total
future minimal rental commitments at December 31, 2011, were as follows:

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Therafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Premises

Equipment

(dollars in thousands)
$207
207
18
0
0
0

$ 3,627
3,306
3,148
2,980
2,798
19,613

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$35,472

$432

Included in the lease commitments above is $486 thousand in lease payments to be paid under a sale-leaseback
arrangement. The sale-leaseback transaction occurred in 2005 and resulted in a gain of $297 thousand on the sale
of a branch that is being recognized over the 15 year lease term through 2020.

Increases in utilities and taxes that may be passed on to the lessee under the terms of various lease agreements are
not reflected in the above table. However, certain lease agreements provide for increases in rental payments
based upon historical increases in the consumer price index or the lessor’s cost of operating the facility, and are
included in the minimum lease commitments. Additionally, the table above includes rent expense that is
recognized for rent holidays and during construction periods. Total lease expense amounted to $4.4 million in
2011, $4.4 million in 2010 and $4.3 million in 2009.

Note 16—Goodwill and Other Amortizing Intangible Assets

FASB ASC Topic 350, “Intangibles—Other” requires that goodwill be reviewed annually, or more frequently, if
circumstances indicate that it might be impaired, by comparing the fair value of the goodwill to its recorded
value, or carrying value. If the carrying value of goodwill exceeds its fair value, an impairment charge must be
recorded.

We consider First Commonwealth to be one reporting unit. The carrying amount of goodwill as of December 31,
2011 and 2010 was $159.9 million. No impairment charges on goodwill or other intangible assets were incurred
in 2011, 2010 or 2009.

91

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 16—Goodwill and Other Amortizing Intangible Assets (Continued)

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. We have evaluated our goodwill for impairment on a
quarterly basis since September 30, 2009 as a result of the negative impact other-than-temporary impairment
charges and credit losses in our loan portfolio have had on our earnings and stock price. These losses along with
ongoing uncertainty in the general economy and the financial markets, which may continue to negatively impact
our performance and stock price, resulted in a need to evaluate our goodwill. There has been no change in our
annual test date of November 30th.

Goodwill is tested for impairment using a two-step process that begins with an estimation of fair value as of
December 31, 2011.

The first step compares the estimated fair value of First Commonwealth with its carrying amount, including
goodwill. If the estimated fair value exceeds its carrying amount, goodwill is not considered impaired. However,
if the carrying amount exceeds its estimated fair value, a second step would be performed that would compare
the implied fair value to the carrying amount of goodwill. An impairment loss would be recorded to the extent
that the carrying amount of goodwill exceeds its implied fair value.

Fair value may be determined using market prices, comparison to similar assets, market multiples, discounted
cash flow analysis and other variables. Our Step 1 test for potential goodwill impairment incorporates both
income and market based analyses. The income analysis used in our Step 1 incorporates estimated cash flows
which extend five years into the future and, by their nature, are difficult to estimate over such an extended time-
frame. Factors that may significantly affect the estimates used in our Step 1 income analysis include, but are not
limited to, balance sheet growth assumptions, credit losses in our investment and loan portfolios, competitive
pressures in our market area, changes in customer base and customer product preferences, changes in revenue
growth trends, cost structure, changes in discount rates, conditions in the banking sector and general economic
variables.

The market approach used in the Step 1 test calculates the change of control price a market participant would pay
by adding a change of control premium to the current trading value of the Company.

As of December 31, 2011, our Step 1 goodwill analysis indicated that our fair value was approximately 26%
below book value. Therefore in accordance with ASC Topic 350-20-35-8, a Step 2 analysis was undertaken.

The Step 2 test follows the purchase price allocation under the purchase method described in ASC 820-10, and
fair value estimates as defined and prescribed by ASC 820-10-30. To determine the implied fair value of
goodwill, the fair value of all assets other than goodwill, less the fair value of liabilities is subtracted from the
fair value of the Company. Significant judgment and estimates are involved in estimating the fair value of the
assets and liabilities of the Company. Key valuations used in the analysis were the mark-to-fair-value on the loan
portfolio, assessment of core deposit intangibles and the mark-to-fair-value of outstanding debt and deposits.

As a result of the Step 2 analysis, it was determined that the fair value of our goodwill exceeded its carrying
value by approximately 40% and therefore no impairment charge was required.

As of December 31, 2011, goodwill was not considered impaired; however, changing economic conditions that
may adversely affect our performance, fair value of our assets and liabilities, or 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.

92

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 16—Goodwill and Other Amortizing Intangible Assets (Continued)

FASB ASC Topic 350, “Intangibles—Other” also requires that an acquired intangible asset be separately
recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the asset
can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer’s intent to do so.

The following table summarizes other intangible assets:

Gross
Intangible
Assets

Accumulated
Amortization

Net
Intangible
Assets

(dollars in thousands)

December 31, 2011
Core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$22,470
725

$(18,627)
(725)

$3,843
0

Total other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$23,195

$(19,352)

$3,843

December 31, 2010
Core deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$22,470
725

$(17,094)
(725)

$5,376
0

Total other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$23,195

$(17,819)

$5,376

Core deposits are amortized over their expected lives using the present value of the benefit of the core deposits
and straight-line methods of amortization. The core deposits have a remaining amortization period of eight years
and a weighted average amortization period of approximately four years. First Commonwealth recognized
amortization expense on other intangible assets of $1.5 million, $2.0 million, and $2.8 million for the years ended
December 31, 2011, 2010 and 2009, respectively. In 2008, other intangible assets consisted of covenants not to
compete which were fully amortized in 2009.

The following presents the estimated amortization expense of core deposit intangibles:

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Therafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Core
Deposit
Intangibles

(dollars in
thousands)
$1,467
1,064
615
338
177
182

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,843

93

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 17—Interest-Bearing Deposits

Components of interest-bearing deposits at December 31 were as follows:

Interest-bearing demand deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

2011

2010

(dollars in thousands)
95,945
2,430,802
1,197,560

95,260
2,335,773
1,479,930

$

Total interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,724,307

$3,910,963

Interest-bearing deposits at December 31, 2011 and 2010, include allocations from interest-bearing demand
deposit accounts of $541.7 million and $507.6 million, respectively, into savings which includes money market
accounts. These reallocations are based on a formula and have been made to reduce First Commonwealth’s
reserve requirement in compliance with regulatory guidelines.

Included in time deposits at December 31, 2011 and 2010, were certificates of deposit in denominations of $100
thousand or more of $317.0 million and $386.8 million, respectively.

Interest expense related to certificates of deposit $100 thousand or greater amounted to $7.4 million in 2011, $9.4
million in 2010 and $14.8 million in 2009.

Included in time deposits at December 31, 2011, were certificates of deposit with the following scheduled
maturities (dollars in thousands):

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 662,473
139,453
181,545
120,947
93,142

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,197,560

Note 18—Short-term Borrowings

Short-term borrowings at December 31 were as follows:

2011

2010

2009

Ending
Balance

Average
Balance

Average
Rate

Ending
Balance

Average
Balance

Average
Rate

Ending
Balance

Average
Balance

Average
Rate

Federal funds purchased . . . $ 75,300 $ 15,642
Borrowings from FHLB . . .
7,537
Securities sold under
agreements to
repurchase . . . . . . . . . . . .

153,477

155,551

84,000

Treasury, tax and loan note

option . . . . . . . . . . . . . . .

0

4,134

Total

. . . . . . . . . . . . . . $312,777 $182,864

Maximum total at any

(dollars in thousands)

0.26% $
0.21

12,800 $ 40,322
277,329

0

0.26% $ 630,000 $ 584,691
274,699
125,000
0.39

0.29%
0.48

0.43

0.00

0.40

170,563

165,945

0.47

199,526

168,527

0.72

4,498

4,482

$ 187,861 $488,078

0.00

0.40

4,406

3,747

$ 958,932 $1,031,664

0.00

0.41

month-end . . . . . . . . . . . . $312,777

$1,000,753

$1,155,933

Weighted average rate at

year-end . . . . . . . . . . . . .

94

0.28%

0.43%

0.30%

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 18—Short-term Borrowings (Continued)

Interest expense on short-term borrowings for the years ended December 31 is detailed below:

2011

2010

2009

Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings from FHLB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . . .

(dollars in thousands)
$ 105
1,069
774

$1,678
1,328
1,210

$ 41
16
671

Total interest on short-term borrowings . . . . . . . . . . . . . . . . . . . . . . .

$728

$1,948

$4,216

Note 19—Subordinated Debentures

Subordinated Debentures outstanding at December 31 are as follows:

2011

2010

Due

Amount

Rate

Amount

Rate

(dollars in thousands)

Owed to:

First Commonwealth Capital Trust I
. . . .
First Commonwealth Capital Trust II . . . .
First Commonwealth Capital Trust III . . .

2029
2034
2034

$ 33,583

9.50% $ 33,583

9.50%

30,929 LIBOR + 2.85
41,238 LIBOR + 2.85

30,929 LIBOR + 2.85
41,238 LIBOR + 2.85

Total

. . . . . . . . . . . . . . . . . . . . . . . . .

$105,750

$105,750

First Commonwealth has established three trusts, First Commonwealth Capital Trust I, 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
LIBOR plus 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. Deferred issuance costs of $630 thousand 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
LIBOR plus 2.85%, which is reset quarterly. 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 $471 thousand are being amortized on a
straight-line basis over the term of the securities.

Interest on debentures issued to First Commonwealth Capital Trust I is paid semiannually at a fixed rate of
9.50%. Subject to regulatory approvals, First Commonwealth may redeem the debentures, in whole or in part, at
a redemption price equal to 103.8% of the principal amount of the debentures declining ratably on each
September 1 to 100% on September 1, 2019, plus accrued and unpaid interest to the date of the redemption.
Deferred issuance costs of $996 thousand are being amortized on a straight-line basis over the term of the
securities.

95

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 20—Other Long-term Debt

Other long-term debt at December 31 follows:

2011

Weighted
Average
Contractual
Rate

Amount

Weighted
Average
Effective
Rate

Amount

(dollars in thousands)

2010

Weighted
Average
Contractual
Rate

Weighted
Average
Effective
Rate

ESOP loan due:

2011 . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . $

Borrowings from FHLB

due:

1,600 LIBOR + 1.00% LIBOR + 1.00% 1,600 LIBOR + 1.00 LIBOR + 1.00

$ 2,000 LIBOR + 1.00% LIBOR + 1.00%

2011 . . . . . . . . . . . . .
2012 . . . . . . . . . . . . .
2013 . . . . . . . . . . . . .
2014 . . . . . . . . . . . . .
2015 . . . . . . . . . . . . .
2016 . . . . . . . . . . . . .
Thereafter . . . . . . . .

25,585
30,085
7,891
29,970
388
6,145

Total

. . . . . . . . $101,664

1.54
2.32
5.37
1.37
4.64
4.66

1.53
2.32
5.35
1.37
4.64
4.66

24,685
25,593
30,086
7,892
371

6,521

$98,748

5.22
2.43
3.03
5.37
4.66

4.66

5.19
2.42
3.02
5.35
4.66

4.66

The weighted average contractual rate reflects the rate due to creditors. The weighted average effective rate of
long-term debt in the schedule above includes the effect of purchase accounting valuation adjustments that were
recorded in connection with prior business combinations.

An FHLB advance in the amount of $7.5 million is convertible on a quarterly basis at the FHLB’s option into
floating rate debt indexed to 3 month LIBOR.

All of First Commonwealth’s Federal Home Loan Bank stock, along with an interest in mortgage loans and
mortgage backed securities—residential has been pledged as collateral with the Federal Home Loan Bank of
Pittsburgh.

Capital securities included in total long-term debt on the Consolidated Statements of Financial Condition are
excluded from the above, but are described in Note 19 “Subordinated Debentures.”

Scheduled loan payments for other long-term debt are summarized below:

2012

2013

2014

2015

2016

Thereafter

Total

Long-term debt payments . . . . . . . . . . . .
Purchase valuation amortization . . . . . . .

$27,072
113

$29,968
117

(dollars in thousands)
$29,970
0

$388
0

$7,854
37

$6,145
0

$101,397
267

Total . . . . . . . . . . . . . . . . . . . . . . . . .

$27,185

$30,085

$7,891

$29,970

$388

$6,145

$101,664

The amounts on the purchase valuation amortization row in the table above include fair market adjustments from
prior business combinations.

96

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 21—Fair Values of Assets and Liabilities

FASB ASC Topic 820, “Fair Value Measurements and Disclosures” 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
Consolidated Statements of Financial Condition or in the “Other assets” category of the Consolidated Statements of
Financial Condition. Currently, First Commonwealth does not have any non-financial liabilities to disclose.

FASB ASC Topic 825, “Financial Instruments” 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 FASB ASC Topic 825; however, in
the future we may elect to adopt this guidance for select financial instruments.

In accordance with FASB ASC 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 1 securities include equity holdings
comprised of publicly traded bank stocks which were priced using quoted market prices.

Level 2—Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are
obtained 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, certain corporate
securities, certain equity securities, FHLB stock, interest rate derivatives that include interest rate swaps
and risk participation agreements, certain other real estate owned and certain impaired 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
recognized pricing service price a random sample of securities each quarter, 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.

The equity investments included in Level 2 are based on broker prices and are included in Level 2
because they are not traded on an active exchange market.

Other Investments is comprised of FHLB stock whose estimated fair value is based on its par value.
Additional information on FHLB stock is provided in Note 10 “Other investments.”

Interest rate derivatives are reported at estimated fair value utilizing Level 2 inputs and are included in
Other assets and Other liabilities. First Commonwealth values its interest rate swap positions using a

97

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 21—Fair Values of Assets and Liabilities (Continued)

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
three months, Eurodollar futures contracts and swap rates from three years to thirty years. These yield
curves determine the valuations of interest rate swaps. Interest rate derivatives are further described in
Note 7 “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.

We also utilize this approach to estimate our own credit risk on derivative liability positions. In 2011,
we recognized $4.4 million in credit losses related to two interest rate swaps which were terminated
due to deterioration in the credit quality of the counterparty.

The estimated fair value for other real estate owned included in Level 2 is determined by either an
independent market based appraisal less 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 select Obligations of States and Political Subdivisions, corporate securities, pooled trust
preferred collateralized debt obligations, non-marketable equity investments, certain impaired loans
and loans held for sale.

The estimated fair values for the Obligations of States and Political Subdivisions included in Level 3
and corporate securities, which include our single issue trust preferred securities, were obtained from
pricing sources with reasonable pricing transparency, taking into account other unobservable inputs
related to the risks for each issuer. These valuations were classified as Level 3 due to the inactivity in
the respective markets.

Our pooled trust preferred collateralized debt obligations are collateralized by the trust preferred
securities of individual banks, thrifts and bank holding companies in the U.S. There has been little or
no active trading in these securities for approximately twenty-four months; therefore it was more
appropriate to determine estimated fair value using a discounted cash flow analysis. The fair values of
the pooled trust preferred collateralized debt obligations are determined by a specialized third party
valuation service. Detail on the process for determining appropriate cash flows for this analysis is
provided in Note 11 “Impairment of Investment Securities.” The discount rate applied to the cash flows
is determined by evaluating the current market yields for comparable corporate and structured credit
products along with an evaluation of the risks associated with the cash flows of the comparable
security. Due to the fact that there is no active market for the pooled trust preferred collateralized debt
obligations, one key reference point is the market yield for the single issue trust preferred securities
issued by banks and thrifts for which there is more activity than for the pooled securities. Adjustments
are then made to reflect the credit and structural differences between these two security types.

98

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 21—Fair Values of Assets and Liabilities (Continued)

Management validates the fair value of the pooled trust preferred collateralized debt obligations by
monitoring the performance of the underlying collateral, discussing the discount rate, cash flow
assumptions and general market trends with the specialized third party and by confirming changes in
the underlying collateral to the trustee and underwriter reports. Management’s monitoring of the
underlying collateral includes deferrals of interest payments, payment defaults, cures of previously
deferred interest payments, any regulatory filings or actions and general news related to the underlying
collateral. Management also evaluates fair value changes compared to expectations based on changes
in the interest rates used in determining the discount rate and general financial markets.

The estimated fair value of the non-marketable equity investments included in level 3 is based on par
value.

Loans held for sale are carried at the lower of cost or fair value with the fair value being the expected
sales price of the loan. The estimated fair value of the loans currently held for sale was determined by
calculating the discounted expected future cash flows of the loan. The discount rate applied to the
future cash flows was determined based on a risk based expected return and capital structure of
potential buyers.

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis at
December 31:

2011

Level 1

Level 2

Level 3

Total

(dollars in thousands)

Obligations of U.S. Government Agencies:

Mortgage-Backed Securities—Residential

. . . . . . . . . . . . . . .

$

Obligations of U.S. Government-Sponsored Enterprises:

. . . . . . . . . . . . . . .
Mortgage-Backed Securities—Residential
Mortgage-Backed Securities—Commercial
. . . . . . . . . . . . . .
Other Government-Sponsored Enterprises . . . . . . . . . . . . . . . .
Obligations of States and Political Subdivisions . . . . . . . . . . . . . . .
Corporate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pooled Trust Preferred Collateralized Debt Obligations . . . . . . . . .

0

0
0
0
0
0
0

Total Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Securities Available for Sale . . . . . . . . . . . . . . . . . .
Other Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans Held for Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0
440

440
0
0
0

$

36,194

$

0

$

36,194

801,031
193
268,648
459
11,411
0

1,117,936
0

1,117,936
39,796
0
16,064

0
0
0
0
0
22,980

22,980
1,420

24,400
0
13,412
0

801,031
193
268,648
459
11,411
22,980

1,140,916
1,860

1,142,776
39,796
13,412
16,064

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$440

$1,173,796

$37,812

$1,212,048

Other Liabilities (a)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

0

0

$

$

18,986

18,986

$

$

0

0

$

$

18,986

18,986

(a) Non-hedging interest rate derivatives

99

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 21—Fair Values of Assets and Liabilities (Continued)

2010

Level 1

Level 2

Level 3

Total

(dollars in thousands)

Obligations of U.S. Government Agencies:

Mortgage-Backed Securities—Residential

. . . . . . . . . . . . . . . .

$

Obligations of U.S. Government-Sponsored Enterprises:

. . . . . . . . . . . . . . . .
Mortgage-Backed Securities—Residential
Mortgage-Backed Securities—Commercial
. . . . . . . . . . . . . . .
Other Government-Sponsored Enterprises . . . . . . . . . . . . . . . .
Obligations of States and Political Subdivisions . . . . . . . . . . . . . . . .
Corporate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pooled Trust Preferred Collateralized Debt Obligations . . . . . . . . . .

Total Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Securities Available for Sale . . . . . . . . . . . . . . . . . .
Other Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0

0
0
0
0
0
0

0
1,462

1,462
0
0

$ 40,593

$

0

$

40,593

641,981
233
183,887
47,476
0
0

914,170
2,442

916,612
48,859
15,939

0
0
0
343
21,376
26,352

48,071
1,570

49,641
0
0

641,981
233
183,887
47,819
21,376
26,352

962,241
5,474

967,715
48,859
15,939

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,462

$981,410

$49,641

$1,032,513

Other Liabilities (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

0

0

$ 16,663

$ 16,663

$

$

0

0

$

$

16,663

16,663

(a) Non-hedging interest rate derivatives

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as
follows at for the year ended December 31, 2011:

Obligations of
States and
Political
Subdivisions

Corporate
Securities

Pooled Trust
Preferred
Collateralized
Debt
Obligations

Loans
Held for
Sale

Equities

Other
Assets

Total

$ 343

$ 21,376

$26,352

$1,570 $

0 $

0 $ 49,641

(dollars in thousands)

4

387

0

(150)

Balance, beginning of year . . . . . .
Total gains or losses

Included in earnings . . . . . . .
Included in other

comprehensive income . . .

(20)

(98)

1,284

Purchases, issuances, sales, and

settlements

Purchases . . . . . . . . . . . . . . . .
Issuances . . . . . . . . . . . . . . . .
Sales . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . .
Transfers from Level 3 . . . . . . . . .
Transfers into Level 3 . . . . . . . . . .

0
0
(327)
0
0
0

0
0
(6,700)
(3,000)
(11,965)
0

0
0
0
(4,656)
0
0

0

0
0
0
0
0
0

0

0

(4,449)

(4,208)

0

1,166

0
0
0
0
0
13,412

0
0
0
(71)
0
4,520

0
0
(7,027)
(7,727)
(11,965)
17,932

Balance, end of year . . . . . . . . . . .

$

0

$

0

$22,980

$1,420 $13,412 $

0 $ 37,812

100

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 21—Fair Values of Assets and Liabilities (Continued)

There are no gains or losses included in earnings for the period that are attributable to the change in realized
gains (losses) relating to assets held at December 31, 2011.

During 2011, securities totaling $12.0 million transferred from Level 3 to Level 2. There were no transfers
between Level 1 and Level 2 securities. The primary reason for the transfer out of Level 3 in 2011 was due to an
increase in activity in the market that resulted in observable market activity or comparable trades that could be
used to establish a benchmark for valuation for this group of securities.

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as
follows for the year ended December 31, 2010:

Obligations of
States and
Political
Subdivisions

Corporate
Securities

Pooled Trust
Preferred
Collateralized
Debt
Obligations

Equities

Other
Assets

Total

. . . . . . . . . . . . . .

$ 3,600

$18,830

(dollars in thousands)
$29,730

$1,570

$0

$53,730

Balance, beginning of year
Total gains or losses

Included in earnings . . . . . . . . . . . . . . . .
Included in other comprehensive

0

0

(8,688)

income . . . . . . . . . . . . . . . . . . . . . . . .

(2,316)

2,546

6,833

Purchases, issuances, sales, and settlements

Purchases . . . . . . . . . . . . . . . . . . . . . . . .
Issuances . . . . . . . . . . . . . . . . . . . . . . . .
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . .
Transfers from Level 3 . . . . . . . . . . . . . . . . . .
Transfers into Level 3 . . . . . . . . . . . . . . . . . .

0
0
(941)
0
0
0

0
0
0
0
0
0

0
0
0
(1,523)
0
0

0

0

0
0
0
0
0
0

0

0

0
0
0
0
0
0

(8,688)

7,063

0
0
(941)
(1,523)
0
0

Balance, end of year . . . . . . . . . . . . . . . . . . . .

$

343

$21,376

$26,352

$1,570

$0

$49,641

During 2010, there were no transfers between Level 1, Level 2 and Level 3 securities.

Losses of $6.8 million included in earnings for the year ended December 31, 2010 are attributable to the change
in realized losses relating to assets held at December 31, 2010 and are reported in the lines “Net impairment
losses” and “Net securities gains (losses)” in the Consolidated Statement of Operations.

Certain financial assets and financial liabilities 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 in certain
circumstances (for example, when there is evidence of impairment).

The tables below present the balances of assets measured at fair value on a nonrecurring basis at December 31,
and total gains and losses realized on these assets during the year ended December 31:

2011

Level 1

Level 2

Level 3

Total

(dollars in thousands)

Total
Gains
(Losses)

Impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$0
0

$0

$ 73,783
31,232

$26,349
438

$100,132
31,670

$(24,636)
(8,643)

$105,015

$26,787

$131,802

$(33,279)

101

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 21—Fair Values of Assets and Liabilities (Continued)

2010

Level 1

Level 2

Level 3

Total

(dollars in thousands)

Total
Gains
(Losses)

Impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$0
0

$0

$ 78,967
24,871

$26,715
10

$105,682
24,881

$(50,953)
(2,309)

$103,838

$26,725

$130,563

$(53,262)

Impaired loans over $100 thousand are individually reviewed to determine the amount of each loan considered to
be at risk of noncollection. The impaired loans are collateral based and the fair value is determined by reviewing
real property appraisals, equipment valuations, accounts receivable listings and other financial information. First
Commonwealth’s loan policy requires updated appraisals be obtained at least every twelve months on all
impaired loans with balances of $250 thousand and over.

Fair value for other real estate owned is determined by an independent market based appraisal less costs to sell
and is classified as level 2. Other real estate owned has a current carrying value of $30.0 million as of
December 31, 2011 and consisted primarily of a Pennsylvania based manufacturing plant with related real estate,
an office building in western Pennsylvania and a multi-family construction project in eastern 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 cost to sell, as determined by valuation techniques appropriate in the circumstances.

Certain other assets and liabilities, including goodwill and core deposit 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. A goodwill impairment test for First Commonwealth was
completed as of December 31, 2011. Based on this analysis, the fair value of First Commonwealth exceeded its
book value. Additional information related to this measurement is provided in Note 16 “Goodwill and Other
Amortizing Intangible Assets.” There were no other assets or liabilities measured at fair value on a nonrecurring
basis during 2011.

FASB ASC Topic 825, “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 short-term instruments: The carrying amounts for cash and short-term instruments approximate the
estimated fair values of such assets.

Securities: Fair values for securities available for sale and securities 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. Pooled trust preferred collateralized debt obligations values 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. These valuations incorporate certain
assumptions and projections in determining the fair value assigned to each instrument. The carrying value of
nonmarketable equity securities, such as FHLB stock, is considered a reasonable estimate of fair value.

Loans held for sale: The fair value of loans held for sale are estimated utilizing a present value of future
discounted cash flows of the loan utilizing a risk based expected return to discount the value.

102

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 21—Fair Values of Assets and Liabilities (Continued)

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 which is not an exit price under FASB ASC Topic 820, “Fair Value Measurements and
Disclosures.” At December 31, 2011, the Company completed a Step 2 goodwill impairment analysis which
incorporated an exit price for loans under FASB ASC Topic 820 of $3.8 billion.

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. Management has determined that
due to the uncertainties of cash flows and difficulty in predicting the timing of cash flows for loan commitments,
fair values were not estimated for either period. 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 December 31, 2011 and 2010. See Note 14 “Commitments and Letters of Credit,” for additional information.

Deposit liabilities: Management estimates the fair value of deposits based on a market valuation of similar
deposits. 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 Federal Home Loan Bank were estimated based
on the estimated incremental borrowing rate for similar types of borrowings. The carrying amounts of other
short-term borrowings such as federal funds purchased, securities sold under agreement to repurchase and
treasury, tax and loan notes were used to approximate fair value.

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

The following table presents carrying amounts and estimated fair values of First Commonwealth’s financial
instruments at December 31:

2011

2010

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

(dollars in thousands)

Financial assets

Cash and due from banks . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . .
Securities available for sale . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

74,967
3,511
1,142,776
39,796
13,412
4,043,643

$

74,967
3,511
1,142,776
39,796
13,412
4,113,525

$

69,854
4
967,715
48,859
0
4,218,083

$

69,854
4
967,715
48,859
0
4,213,293

Financial liabilities

Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,504,684
312,777
101,664
105,750

4,452,235
312,777
103,749
75,310

4,617,852
187,861
98,748
105,750

4,560,070
182,931
102,038
86,870

103

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 22—Income Taxes

The income tax (benefit) provision for the years ended December 31 is as follows:

Current tax provision for income exclusive of securities transactions:

Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

651
161

$ 3,794
59

$ 3,123
164

Total current tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

812
(1,192)

3,853
(3,614)

3,287
(29,108)

Total tax (benefit) provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (380) $

239

$(25,821)

2011

2010

2009

(dollars in thousands)

The statutory to effective tax rate reconciliation for the years ended December 31 is as follows:

Tax at statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease resulting from:

2011

2010

2009

% of
Pretax
Income Amount

% of
Pretax
Income

Amount

Amount

% of
Pretax
Income

$ 5,213

35% $ 8,126

35% $(16,060)

35%

(dollars in thousands)

Income from bank owned life insurance . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Tax-exempt income, net
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other

(1,959)
(3,453)
(270)
89

(13)
(23)
(2)
0

(1,866)
(5,688)
(304)
(29)

(8)
(25)
(1)
0

(1,555)
(7,537)
(447)
(222)

3
16
1
1

Total tax (benefit) provision . . . . . . . . . . . . .

$ (380)

(3)% $

239

1% $(25,821)

56%

The total tax provision for financial reporting differs from the amount computed by applying the statutory federal
income tax rate to income before taxes. First Commonwealth ordinarily generates an annual effective tax rate
that is less than the statutory rate of 35% due to benefits resulting from tax-exempt interest, income from bank
owned life insurance and tax benefits associated with low income housing tax credits. The consistent level of tax
benefits that reduce First Commonwealth’s tax rate below the 35% statutory rate, coupled with the relatively low
level of annual pretax income produced a low tax benefit for the year ended December 31, 2011 and a low tax
provision for the year ended December 31, 2010.

104

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 22—Income Taxes (Continued)

The tax effects of temporary differences between the financial statement carrying amounts and the tax bases of
assets and liabilities that represent significant portions of the deferred tax assets and liabilities at December 31
are presented below:

Deferred tax assets:

Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefits other than pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alternative minimum tax credit carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Writedown of other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other tax credit carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swap credit risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan origination fees and costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest on nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low income housing partnership investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss on securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization of OREO expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfunded loan commitment allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2011

2010

(dollars in thousands)

$21,432
841
15,247
1,626
2,876
1,383
2,215
1,037
0
3,161
44
15,764
0
826
0
536
2,778

$24,930
933
14,764
0
780
1,034
2,115
254
110
2,543
204
16,570
1,589
446
683
507
2,309

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

69,766

69,771

Deferred tax liabilities:

Basis difference in assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan origination fees and costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfunded postretirement obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated accretion of bond discount
Income from unconsolidated subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,213)
(392)
(179)
(18)
(551)
(898)
(242)
(1)

(1,429)
0
(269)
(49)
(542)
0
0
(1)

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3,494)

(2,290)

Net deferred tax asset

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$66,272

$67,481

The net deferred tax asset of $66.3 million as of December 31, 2011 includes a $15.2 million alternative
minimum tax credit carryforward with an indefinite life and a $1.4 million tax credit carryforward, of which $0.2
million expires in 2028, $0.5 million expires in 2029, $0.3 million expires in 2030 and $0.4 million expires in
2031. There is also a $15.8 million deferred tax asset for other-than-temporary impairment of securities, of which
$0.2 million are potential capital losses that can only be utilized if capital gains are realized.

Management assesses all available positive and negative evidence to estimate if sufficient future taxable income
will be generated to utilize the existing deferred tax assets. In evaluating deferred tax assets, future taxable
income of $177.0, forecasted over the next three years was considered.

105

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 22—Income Taxes (Continued)

The amount of future taxable income used in management’s valuation is based upon management approved
forecasts, evaluation of historical earnings levels, proven ability to raise capital to support growth or during times
of economic stress and consideration of prudent and feasible potential tax strategies. If future events differ from
our current forecasts, a valuation allowance may be required, which could have a material impact on our
financial condition and results of operations. Based on our evaluation, including the consideration of the
weighting of positive and negative evidence, as of December 31, 2011, management has determined that no
valuation allowance is necessary for the deferred tax assets because it is more likely than not that these assets
will be realized through future reversals of existing temporary differences and through future taxable income.

First Commonwealth adopted new authoritative accounting guidance issued under FASB ASC Topic 740-10,
“Accounting for Uncertainty in Income Taxes” as of January 1, 2007, and had no material unrecognized tax
benefits or accrued interest and penalties as of December 31, 2011. We do not expect the total amount of
unrecognized tax benefits to significantly increase in the next twelve months and 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 as well as all
states in which we conduct business. Federal and state income tax years 2008 through 2010 are open for
examination as of December 31, 2011.

Note 23—Retirement Plans

First Commonwealth has a savings plan pursuant to the provisions of section 401(k) of the Internal Revenue
code. Under the terms of the plan, each participant receives an employer contribution in an amount equal to 3%
of their compensation. In addition, each participating employee may contribute up to 80% of their compensation
to the plan of which up to 4% is matched 50% by the employer’s contribution. The 401(k) plan expense was
$2.5 million in 2011, $2.6 million in 2010, and $3.6 million in 2009.

First Commonwealth maintains a Supplemental Executive Retirement Plan (“SERP”) to provide deferred
compensation for those employees whose total annual or annualized Plan compensation for a calendar year
exceeded the maximum limit of compensation that can be recognized for tax-qualified retirement plans. The
purpose of this Plan is to restore some of the benefits lost by eligible employees compared to other employees
due to limits and restrictions incorporated into First Commonwealth’s 401(k) Plan and ESOP.

Participants in the SERP are eligible to defer (on a pre-tax basis) from 1% to 25% of their Plan compensation
(compensation in excess of the tax-qualified plan limit). In 2009, First Commonwealth made a matching
contribution to the Plan for each payroll up to the first 4% of their Plan compensation and also made a
contribution to the Plan for each payroll equal to 3% of their Plan compensation. In addition, First
Commonwealth made a contribution to the Plan at the end of the Plan Year on Plan compensation equal to that
percentage of compensation that will be contributed to the ESOP. In April 2009 First Commonwealth suspended
all employer contributions.

The SERP will continue to supplement First Commonwealth’s 401(k) and ESOP plans and will therefore be
modified at the same time and in the same respect as the basic plans are modified in future periods. The SERP
plan expense was $86 thousand in 2011, $96 thousand in 2010 and $130 thousand in 2009.

Employees from former acquisitions were covered by postretirement benefit plans which provide medical and
life insurance coverage. The measurement date for these plans was December 31.

106

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 23—Retirement Plans (Continued)

Postretirement Benefits Other than Pensions from Prior Acquisitions

Net periodic benefit cost of these plans for the years ended December 31, was as follows:

Service cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost on projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2011

2010

2009

(dollars in thousands)

$ 0
86
2
(50)

$

0
128
2
(10)

$

0
141
2
(28)

Net periodic benefit cost

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 38

$120

$115

The following table sets forth the change in the benefit obligation and plan assets as of December 31:

Change in Benefit Obligation

Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2011

2010

(dollars in thousands)

$1,897
0
86
0
210
(301)

$2,562
0
128
0
(450)
(343)

Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,892

1,897

Change in Plan Assets

Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . .
Funded Status at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0
0
301
(301)

0
1,892
(2)
513

0
0
343
(343)

0
1,897
(3)
772

Amounts recognized in retained earnings . . . . . . . . . . . . . . . . . . . . . . .

$2,403

$2,666

As of December 31, the funded status of the plan is:

Amounts Recognized in the Statement of Financial Condition as Other

liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,892

$1,897

2011

2010

(dollars in thousands)

107

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 23—Retirement Plans (Continued)

Postretirement Benefits Other than Pensions from Prior Acquisitions (Continued)

The following table sets forth the amounts recognized in accumulated other comprehensive income that have not
yet been recognized as components of net periodic benefit costs as of December 31:

Amounts recognized in accumulated other comprehensive income,

net of tax:

Net (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(333)
1

$(332)

$(502)
2

$(500)

$(216)
3

$(213)

2011

2010

2009

(dollars in thousands)

Weighted-average assumptions used to determine the benefit obligation as of December 31 are as follows:

Weighted-average Assumptions

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Health care cost trend: Initial
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Health care cost trend: Ultimate . . . . . . . . . . . . . . . . . . . . . . . . .
Year ultimate reached . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.22%
8.00%
4.75%
2016

4.71%
9.00%
4.75%
2016

5.21%
10.00%
4.75%
2016

2011

2010

2009

Weighted-average assumptions used to determine the net benefit costs as of December 31 are as follows:

2011

2010

2009

Weighted Average Assumptions for Net Periodic Cost

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Health care cost trend: Initial
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Health care cost trend: Ultimate . . . . . . . . . . . . . . . . . . . . . . . . .
Year ultimate reached . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corridor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognition period for gains and losses . . . . . . . . . . . . . . . . . . .

4.71%
5.21%
4.71%
9.00% 10.00% 10.00%
4.75%
4.75%
4.75%
2016
2016
2016
10.00% 10.00% 10.00%
12.7
12.7

13.0

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) introduced a
prescription drug benefit under Medicare Part D and a federal subsidy to sponsors of retiree health care benefit
plans that provide a prescription drug benefit that is at least actuarially equivalent to Medicare Part D. The
postretirement plans of First Commonwealth are provided through insurance coverage; therefore, First
Commonwealth will not receive a direct federal subsidy. The preceding measures of the accumulated
postretirement benefit cost assume that First Commonwealth will not receive the subsidy due to the relatively
small number of retirees.

The health care cost trend rate assumption can have a significant impact on the amounts reported for this plan. A
one-percentage-point change in assumed health care cost trend rates would have the following effects:

Effect on total of service and interest cost components . . . . . . . . . .
Effect on postretirement benefit obligation . . . . . . . . . . . . . . . . . . . .

$ 3
58

$ (3)
(54)

One-Percentage-
Point Increase

One-Percentage-
Point Decrease

(dollars in thousands)

108

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 23—Retirement Plans (Continued)

Postretirement Benefits Other than Pensions from Prior Acquisitions (Continued)

As of December 31, 2011, the projected benefit payments for the next ten years are as follows:

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 - 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Projected Benefit
Payments

(dollars in thousands)
$247
236
230
223
215
802

The projected payments were calculated using the same assumptions as those used to calculate the benefit
obligations included in this note.

The estimated costs that will be amortized from accumulated other comprehensive income into net periodic cost
for 2012 are as follows (dollars in thousands):

Net gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(32)
2

$(30)

Note 24—Unearned ESOP Shares

All employees with at least one year of service are eligible to participate in the ESOP. Contributions to the plan
are determined by the Board of Directors and are based upon a prescribed percentage of the annual compensation
of all participants. The ESOP acquired shares of First Commonwealth’s common stock in a transaction whereby
the ESOP Trust borrowed funds that were guaranteed by First Commonwealth. The borrowed amounts represent
leveraged and unallocated shares, and accordingly have been recorded as long-term debt with the offset as a
reduction of common shareholders’ equity. Compensation costs related to the plan were $717 thousand, $783
thousand and $972 thousand in 2011, 2010 and 2009, respectively.

109

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 24—Unearned ESOP Shares (Continued)

First Commonwealth’s ESOP borrowed funds that are guaranteed by First Commonwealth, and had a balance of
$1.6 million at December 31, 2011 and $3.6 million at December 31, 2010. The loan is scheduled to be repaid in
2012 and payments will be made from contributions to the ESOP by First Commonwealth and from dividends on
unallocated ESOP shares. The loan has been recorded as long-term debt in the Consolidated Statements of
Financial Condition, with a like amount of unearned ESOP shares recorded as a reduction of shareholders’
equity. The unearned ESOP shares included as a component of shareholders’ equity represent First
Commonwealth’s prepayment of future compensation expense. The shares acquired by the ESOP are held in a
suspense account and will be released to the ESOP for allocation to the plan participants as the debt is reduced.

The following is an analysis of ESOP shares held in suspense and the fair value of those shares as of
December 31:

Shares in suspense, beginning of the year . . . . . . . . . . . . . . . .
Shares allocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2011

2010

2009

237,106
(132,445)
0

(dollars in thousands)
375,925
(138,819)
0

512,117
(136,192)
0

Shares in suspense, end of the year . . . . . . . . . . . . . . . . . . . . .

104,661

237,106

375,925

Fair market value of shares in suspense . . . . . . . . . . . . . . . . . .

$

550

$

1,679

$

1,748

Interest paid on the ESOP loan and dividends received on unallocated shares for the year ended December 31
were:

2011

2010

2009

Interest paid on ESOP loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on unallocated shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(dollars in thousands)
$66
22

$ 95
154

$38
32

Dividends on unallocated shares were used for debt service while all dividends on allocated shares were allocated
or paid to the participants.

Note 25—Incentive Compensation Plan

On January 20, 2009, the Board of Directors of the Company adopted with shareholder approval, the First
Commonwealth Financial Corporation Incentive Compensation Plan. This plan allows for shares of common
stock to be issued to employees, directors, and consultants of the Company and its subsidiaries as an incentive to
aid in the financial success of the Company. The shares can be issued as options, stock appreciation rights,
performance share or unit awards, dividend or dividend equivalent rights, stock awards, restricted stock awards,
or other annual incentive awards. Up to 5,000,000 shares of stock can be awarded under this plan, of which,
4,810,369 shares are still eligible for awards.

Restricted Stock

The following provides detail on the restricted stock awards which were issued in 2011 and 2010 in order to
retain and attract key employees. The grant date fair value of the restricted stock awards is equal to the price of
the Corporation’s common stock on grant date.

110

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 25—Incentive Compensation Plan (Continued)

Restricted Stock (Continued)

On November 21, 2011, we issued 10,000 shares of our common stock to an executive of the Company as an
inducement for her employment which was issued under the Incentive Compensation Plan adopted by the
Company. The shares were issued pursuant to a Restricted Stock Agreement dated November 21, 2011. The
restricted stock was determined to have a fair value of $4.41 per share and was based on the closing price of our
common stock on the grant date. The restricted stock fully vests at the end of a three year period on
November 21, 2014.

On April 1, 2011, we issued 25,000 shares of our common stock to an executive of the Bank as an inducement to
his employment which was issued under the Incentive Compensation Plan adopted by the Company. The shares
were issued pursuant to a Restricted Stock Agreement dated April 1, 2011. The restricted stock was determined
to have a fair value of $6.82 per share and was based on the closing price of our common stock on the grant date.
The restricted stock fully vests at the end of a five year period on April 1, 2016.

On January 22, 2010, we issued 30,120 shares of our common stock to an executive of the Company as an
inducement for his employment which was issued under the Incentive Compensation Plan adopted by the
Company. The shares were issued pursuant to a Restricted Stock Agreement dated January 22, 2010. The
restricted stock was determined to have a fair value of $5.70 per share and was based on the closing price of our
common stock on the grant date. The restricted stock vests equally over a two year period ending January 22,
2012.

On April 1, 2008, we issued 12,654 shares of our common stock to an executive of the Bank as an inducement
for his continued employment and not under any stock incentive plan adopted by the Company. The shares were
issued pursuant to a Restricted Stock Agreement dated April 1, 2008. The restricted stock was determined to
have a fair value of $12.35 per share and was based on the closing price of our common stock on the grant date.
The restricted stock vests equally over a three year period ending April 1, 2011.

On November 12, 2007, we issued 35,000 shares of our common stock to an executive of the Bank as an
inducement for his employment and not under any stock incentive plan adopted by the Company. The shares
were issued pursuant to a Restricted Stock Agreement dated October 19, 2007. The restricted stock was
determined to have a fair value of $10.95 per share and was based on the closing price of our common stock on
the grant date. The restricted stock vested equally over a three year period, and the final vesting occurred on
November 12, 2010.

Compensation expense related to restricted stock was $249 thousand, $244 thousand and $180 thousand in 2011,
2010 and 2009, respectively. As of December 31, 2011, there was $684.9 thousand of unrecognized
compensation cost related to unvested restricted stock awards granted.

On December 30, 2011, First Commonwealth entered into an agreement with an executive of the Company to
issue 100,000 shares of our common stock as inducement for his continued employment on January 1, 2012. The
restricted stock is determined to have a fair value of $5.26 per share and was based on the closing price of our
stock on the grant date. The restricted stock will vest equally over a four year period with final vesting occurring
on January 1, 2016. This grant will require compensation expense of $526 thousand to be recorded over the four-
year vesting period.

111

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 25—Incentive Compensation Plan (Continued)

Restricted Stock (Continued)

A summary of the status of First Commonwealth’s unvested service-based restricted stock awards as of
December 31 and changes for the years ended on those dates is presented below:

2011

2010

2009

Outstanding, beginning of the year . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares

34,338
35,000
(19,278)
0

Outstanding, end of the year . . . . . . . . . .

50,060

Weighted
Average
Grant Date
Fair Value

$6.52
6.13
7.16
0.00

6.00

Weighted
Average
Grant Date
Fair Value

$11.53
5.70
11.32
0.00

Weighted
Average
Grant Date
Fair Value

$11.44
0.00
11.32
0.00

Shares

35,988
0
(15,885)
0

Shares

20,103
30,120
(15,885)
0

34,338

6.52

20,103

11.53

On January 17, 2011, the Board of Directors approved the 2011—2013 Long-Term Incentive Plan (the “Plan”).
The Plan stipulates restricted stock awards based on future performance of the Company over a three-year
performance period. If performance thresholds are met, participants will receive 40% of the target award; if
performance targets are met, participants will receive 100% of the target award; if performance targets are
exceeded at a superior level, participants will receive 200% of the target award. If the performance thresholds are
not achieved, participants will not receive an award. If awards are received, the restricted shares will vest over a
one-year period after the performance period, with final vesting occurring on January 17, 2014. The following
table summarizes the unvested target award for the Plan as of December 31:

2011

Outstanding, beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares

0
126,000
0
(32,667)

Outstanding, end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93,333

Weighted
Average
Grant Date
Fair Value

$0.00
7.03
0.00
7.03

7.03

Stock Option Plan

First Commonwealth’s stock based compensation plan expired on October 15, 2005, and is described below. All
of the exercise prices and related number of shares have been adjusted to reflect historical stock splits. The plan
permitted the Executive Compensation Committee to grant options for up to 4.5 million shares of First
Commonwealth’s common stock through October 15, 2005.

The vesting requirements and terms of options granted were at the discretion of the Executive Compensation
Committee. Options granted in 2005 vested in the year granted. All options expire ten years from the grant date.
All equity compensation plans were approved by security holders.

112

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 25—Incentive Compensation Plan (Continued)

Stock Option Plan (Continued)

A summary of the status of First Commonwealth’s outstanding stock options as of December 31 and changes for
the years ended on those dates is presented below:

Outstanding, beginning of the year . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2011

2010

2009

Weighted
Average
Exercise
Price

$10.05
0.00
5.29
10.61

Weighted
Average
Exercise
Price

$10.18
0.00
0.00
11.19

Weighted
Average
Exercise
Price

$10.26
0.00
11.56
12.34

Shares

758,480
0
(4,476)
(25,452)

Shares

728,552
0
0
(87,686)

Shares

640,866
0
(13,760)
(130,243)

Balance, end of the year

. . . . . . . . . . . . . . .

496,863

10.03

640,866

10.05

728,552

10.18

Exercisable at the end of the year . . . . . . . . . . . .

496,863

10.03

640,866

10.05

728,552

10.18

The intrinsic value of stock options exercised during the years ended December 31, 2011 and 2009 was $1.17 per
share and $3.30 per share, respectively. There were no options exercised during the year ended December 31,
2010.

The following table summarizes information about the stock options outstanding at December 31, 2011:

Range of Exercise Prices

$5.14 - $8.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9.00 - $9.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10.00 - $10.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11.00 - $11.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12.00 - $15.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Options Outstanding

Options Exercisable

Weighted
Average
Remaining
Contract
Life

0.6
1.4
1.9
0.1
1.3

Weighted
Average
Exercise
Price

$ 6.68
9.27
10.46
11.70
12.46

Number
Exercisable

164,945
50,087
4,954
112,414
164,463

Weighted
Average
Exercise
Price

$ 6.68
9.27
10.46
11.70
12.46

Number
Outstanding

164,945
50,087
4,954
112,414
164,463

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

496,863

0.79

10.03

496,863

10.03

Note 26—Contingent Liabilities

McGrogan v. First Commonwealth Bank is a class action that was filed on January 12, 2009, in the Court of
Common Pleas of Allegheny County, Pennsylvania. The action alleges that First Commonwealth Bank promised
class members a minimum interest rate of 8% on its IRA Market Rate Savings Account for as long as the class
members kept their money on deposit in the IRA account. The class asserts that First Commonwealth committed
fraud, breached its modified contract with the class members, and violated the Pennsylvania Unfair Trade
Practice and Consumer Protection Law when it resigned as custodian of the IRA Market Rate Savings Accounts
in 2008 and offered the class members a roll-over IRA account with a 3.5% interest rate. At that time, aggregate
balances in the IRA Market Rate Savings accounts totaled approximately $11.5 million. The class members seek
monetary damages for the alleged breach of contract, punitive damages for the alleged fraud and Unfair Trade
Practice and Consumer Protection Law violations, and attorney’s fees. On July 27, 2011, the court granted class

113

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 26—Contingent Liabilities (Continued)

certification as to breach of contract claim and denied class certification as to the fraud and Pennsylvania Unfair
Trade Practice and Consumer Protection Law claims. On December 20, 2011, the Plaintiffs filed a Motion for
Partial Summary Judgment, and on February 27, 2012, First Commonwealth Bank filed a Motion for Summary
Judgment and a Brief in Opposition to the Plaintiffs’ Motion for Partial Summary Judgment. Oral argument on
these Motions is currently scheduled for April 2012. The amount of liability, if any, will depend upon
information which is not presently known to the Bank, including the Court’s interpretation of the IRA contract
and each class member’s life expectancy and pace of distributions from the IRA account. Accordingly, the
Company is unable to estimate the amount or range of a reasonably possible loss.

Note 27—Related Party Transactions

Some of First Commonwealth’s directors, executive officers, principal shareholders and their related interests
had transactions with the subsidiary bank in the ordinary course of business. All deposit and loan transactions
were made on substantially the same terms, such as collateral and interest rates, as those prevailing at the time for
comparable transactions. In the opinion of management, these transactions do not involve more than the normal
risk of collectibility nor do they present other unfavorable features. It is anticipated that further such transactions
will be made in the future.

The following is an analysis of loans to related parties (dollars in thousands):

Balance December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,069
5,074
(5,134)
(458)

Balance December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

551

The “Other” line primarily reflects decreases due to changes in the individuals designated as a “related party”
during the year.

Note 28—Regulatory Restrictions and Capital Adequacy

The amount of funds available to the parent from its subsidiary bank is limited by restrictions imposed on all
financial institutions by banking regulators. The dividend restrictions have not had, and are not expected to have,
a significant impact on First Commonwealth’s ability to meet its cash obligations. Cash dividends declared per
common share were $0.12 for 2011 and $0.06 for 2010.

First Commonwealth is 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 its banking subsidiary 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.

Quantitative measures established by regulation to ensure capital adequacy require First Commonwealth to
maintain minimum amounts and ratios of Total and Tier I capital (common and certain other “core” equity
capital) to risk weighted assets, and of Tier I capital to average assets. As of December 31, 2011, First
Commonwealth and its banking subsidiary met all capital adequacy requirements to which they are subject.

114

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 28—Regulatory Restrictions and Capital Adequacy (Continued)

As of December 31, 2011, First Commonwealth Bank was considered well capitalized under the regulatory
framework for prompt corrective action. To be considered well capitalized, the bank must maintain minimum
Total risk-based capital, Tier I risk-based capital and Tier I leverage ratios as set forth in the table below:

Actual

Regulatory
Minumum

Well Capitalized
Regulatory
Guidelines

Capital
Amount Ratio

Capital
Amount Ratio

Capital
Amount Ratio

(dollars in thousands)

As of December 31, 2011

Total Capital to Risk Weighted Assets

First Commonwealth Financial Corporation . . . . $720,307 14.7% $391,709 8.0%
First Commonwealth Bank . . . . . . . . . . . . . . . . .

689,333 14.1

390,172 8.0

Teir I Capital to Risk Weighted Assets

First Commonwealth Financial Corporation . . . . $659,083 13.5% $195,855 4.0%
First Commonwealth Bank . . . . . . . . . . . . . . . . .

628,346 12.9

195,086 4.0

Tier I Capital to Average Assets

First Commonwealth Financial Corporation . . . . $659,083 11.9% $221,444 4.0%
First Commonwealth Bank . . . . . . . . . . . . . . . . .

628,346 11.4

219,627 4.0

As of December 31, 2010

Total Capital to Risk Weighted Assets

First Commonwealth Financial Corporation . . . . $720,697 14.2% $405,272 8.0%
First Commonwealth Bank . . . . . . . . . . . . . . . . .

677,847 13.5

401,051 8.0

Teir I Capital to Risk Weighted Assets

First Commonwealth Financial Corporation . . . . $657,106 13.0% $202,636 4.0%
First Commonwealth Bank . . . . . . . . . . . . . . . . .

614,914 12.3

200,526 4.0

Tier I Capital to Average Assets

First Commonwealth Financial Corporation . . . . $657,106 11.5% $228,104 4.0%
First Commonwealth Bank . . . . . . . . . . . . . . . . .

614,914 10.9

226,363 4.0

N/A N/A

$487,715 10.0%

N/A N/A

$292,629

6.0%

N/A N/A

$274,534

5.0%

N/A N/A

$501,314 10.0%

N/A N/A

$300,789

6.0%

N/A N/A

$282,953

5.0%

Note 29—Capital

In the third quarter of 2010, the Company completed a public offering of 18,543,750 shares of its common stock
at an offering price of $4.65 per share, raising additional capital of $86.2 million. In connection with the stock
offering approximately $4.8 million worth of costs were capitalized resulting in net proceeds of $81.4 million.

The Company amended its Dividend Reinvestment Plan (“DRIP”) during the second quarter of 2009 to provide
the flexibility to raise capital by selling up to 5,000,000 shares of common stock through the DRIP. These shares
may be sold pursuant to routine reinvested dividends, as well as optional cash purchases. During 2011, there
were no shares issued under this program. During 2010, 1,116,810 shares were issued under this program,
745,912 of which were related to the reissuance of Treasury Shares, raising $6.7 million in capital. During 2009,
97,905 shares were issued under this program, all of which were related to the reissuance of Treasury Shares,
raising $0.4 million in capital.

115

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 30—Condensed Financial Information of First Commonwealth Financial Corporation (parent
company only)

Statements of Financial Condition

Assets

December 31,

2011

2010

(dollars in thousands)

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to affiliated parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated subsidiary trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in jointly-owned company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recievable from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

6,376
34
751,702
3,291
8,007
14,196
2,545
85,833

$ 20,871
39
730,066
3,291
7,883
12,225
2,856
91,924

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$871,984

$869,155

Liabilities and Shareholders’ Equity

Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debentures payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

6,091
1,600
105,750
758,543

$ 10,028
3,600
105,750
749,777

Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$871,984

$869,155

Statements of Operations

2011

2010

2009

Interest and dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

(dollars in thousands)
$
1
10,321
(5,605)
30,595
(44,057)

1
3,190
(5,658)
28,789
(42,786)

2
31,048
(6,265)
29,125
(42,916)

Income (loss) before taxes and equity in undistributed earnings of

subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable income tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income (loss) before equity in undistributed earnings of subsidiaries . . . . .
Equity in undistributed earnings of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . .

(8,745)
6,618

(2,127)
17,401

(16,464)
6,790

10,994
7,226

(9,674)
32,652

18,220
(38,284)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 15,274

$ 22,978

$(20,064)

116

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 30—Condensed Financial Information of First Commonwealth Financial Corporation (parent
company only) (Continued)

Statements of Cash Flow

Operating Activities

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to net cash provided by

operating activities:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (gain) loss on sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in prepaid income taxes . . . . . . . . . . . . . . . . . . . .
Undistributed equity in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2011

2010

2009

(dollars in thousands)

$ 15,274

$ 22,978

$(20,064)

3,730
(1,069)
0
(17,401)
1,649

3,658
(3)
23
(32,652)
9,029

3,330
8
(23)
38,285
(3,819)

Net cash provided by operating activities . . . . . . . . . . . . . . . . . .

2,183

3,033

17,717

Investing Activities

Net change in loans to affiliated parties . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional investment in subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5
(5,736)
1,461
0

7
(3,026)
15
(70,000)

8
(3,282)
(6)
0

Net cash used by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .

(4,270)

(73,004)

(3,280)

Financing Activities

Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount on dividend reinvestment plan purchases . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from reissuance of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock option tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

144
(63)
(12,558)
72
(9)
6

83,913
(33)
(5,306)
4,248
(9)
0

0
(369)
(29,677)
484
(18)
149

Net cash (used in) provided by financing activities . . . . . . . . . . . . . . .

(12,408)

82,813

(29,431)

Net (decrease) increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(14,495)
20,871

12,842
8,029

(14,994)
23,023

Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 6,376

$ 20,871 $ 8,029

Cash dividends declared per common share were $0.12 for 2011, $0.06 for 2010 and $0.18 for 2009.

During 2004, the ESOP obtained a $14.0 million line of credit from an unrelated financial institution. The line of
credit was used to purchase stock in 2005 for the ESOP and is guaranteed by First Commonwealth. During 2005,
$8.5 million was borrowed on the line. There were no borrowings on the line during 2011, 2010 and 2009. The
loan was recorded as long-term debt and the offset was recorded as a reduction of common shareholders’ equity.
Current balance of the ESOP loan is $1.6 million. See Note 24 “Unearned ESOP Shares.” We are currently not
meeting debt covenants on this loan related to Return on Average Assets and expect to either obtain a waiver or a
modification from the lender for these covenants.

First Commonwealth Financial Corporation has an unsecured $15.0 million line of credit with another financial
institution. There are no amounts outstanding on this line as of December 31, 2011. As of December 31, 2011,
we did not meet the debt covenants related to Return on Average Assets but have obtained a waiver from the
lender for this covenant for the quarter ended December 31, 2011.

117

ITEM 8. Financial Statements and Supplementary Data (Continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Quarterly Summary of Financial Data—Unaudited

The unaudited quarterly results of operations for the years ended December 31 are as follows:

Fourth
Quarter

Third
Quarter

Second
Quarter

First
Quarter

2011

Interest income . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . .
Net interest income after provision for

credit losses . . . . . . . . . . . . . . . . . . . . .
Net impairment losses . . . . . . . . . . . . . . . . . . .
Net securities gains . . . . . . . . . . . . . . . . . . . . .
Other noninterest income . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income before income taxes . . . . . . . . .
Income tax (benefit) provision . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . .

Basic (loss) earnings per share . . . . . . . . . . . . .
Diluted (loss) earnings per share . . . . . . . . . . .
Average shares outstanding . . . . . . . . . . . . . . .
Average shares outstanding assuming

$

$

$

(dollars in thousands, except per share data)
$

$

$

56,487
8,854
47,633
25,912 (a)

57,600
10,120
47,480
6,975

57,989
11,104
46,885
9,112

21,721
0
0
15,478
48,576
(11,377)
(5,660)
(5,717)

(0.05)
(0.05)
104,765,492

40,505
0
0
10,799
41,121
10,183
1,857
8,326

0.08
0.08
104,728,915

$

$

$

$

37,773
0
1,608
15,456
45,700
9,137
1,718
7,419

0.07
0.07
104,686,072

$

$

59,469
11,600
47,869
13,817

34,052
0
577
13,751
41,429
6,951
1,705
5,246

0.05
0.05
104,618,499

dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

104,765,492

104,728,915

104,686,072

104,623,518

(a) The increase in the provision for credit losses during the fourth quarter can be attributed to revised collateral
valuations on nine impaired commercial loan relationships, primarily secured by commercial real estate, the
transfer of three loan relationships to held-for-sale and the restructuring of two commercial loans.

2010

Fourth
Quarter

Third
Quarter

Second
Quarter

First
Quarter

(dollars in thousands, except per share data)

Interest income . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . .
Net interest income after provision for

credit losses . . . . . . . . . . . . . . . . . . . . .
Net impairment losses . . . . . . . . . . . . . . . . . . .
Net securities gains . . . . . . . . . . . . . . . . . . . . .
Other noninterest income . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . .
Income tax provision (benefit) . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . .

Basic earnings (loss) per share . . . . . . . . . . . . .
Diluted earnings (loss) per share . . . . . . . . . . .
Average shares outstanding . . . . . . . . . . . . . . .
Average shares outstanding assuming

$

$

$

63,363
13,392
49,971
8,000

41,971
(43)
10
14,288
43,378
12,848
903
11,945

0.11
0.11
104,524,923

$

$

$

65,982
14,886
51,096
4,522

46,574
(4,290)
1,430
13,739
40,931
16,522
5,863
10,659

0.11
0.11
97,199,306

$

$

$

68,937
16,341
52,596
4,010

48,586
(2,110)
562
14,197
43,678
17,557
4,015
13,542

0.15
0.15
85,777,550

$

$

$

70,078
16,980
53,098
45,020

8,078
(2,750)
420
13,781
43,239
(23,710)
(10,542)
(13,168)

(0.15)
(0.15)
85,029,748

dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

104,527,683

97,203,753

85,788,566

85,029,748

118

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A. 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.

In addition, our management, including our Chief Executive Officer and Chief Financial Officer, also conducted
an evaluation of our internal controls over financial reporting to determine whether any changes occurred during
the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting. No such changes were identified in connection with this evaluation.

ITEM 9B. Other Information

None.

119

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

Information called for by this item concerning the identification, business experience and qualifications of First
Commonwealth’s directors will be included in First Commonwealth’s definitive Proxy Statement to be filed with
the Securities and Exchange Commission in connection with the annual meeting of shareholders to be held April
24, 2012 (the “Proxy Statement”), under the heading “Proposal 1—Election of Directors,” and is incorporated
herein by reference.

Information called for by this item concerning First Commonwealth’s compliance with section 16(a) of the
Exchange Act will be included in the Proxy Statement under the heading “Section 16(a) Beneficial Ownership
Reporting Compliance,” and is incorporated herein by reference.

First Commonwealth has adopted a code of conduct and ethics that applies to all employees of the Company,
including executive officers. In addition, First Commonwealth has adopted a code of ethics for the Chief
Executive Officer and all senior financial officers of the Company. Both of these codes are filed as exhibits to
this Annual Report on Form 10-K and are posted on First Commonwealth’s website at
http://www.fcbanking.com. Refer to Item 15 of this Annual Report on Form 10-K for a list of exhibits.

There have been no material changes to the procedures by which security holders of First Commonwealth may
recommend nominees to First Commonwealth’s Board of Directors since First Commonwealth last disclosed
those procedures in its definitive Proxy Statement in connection with the 2012 annual meeting of shareholders.

Information called for by this item concerning First Commonwealth’s Audit Committee and the identification of
“Audit Committee financial experts” will be included in the Proxy Statement under the heading “Corporate
Governance,” and is incorporated herein by reference.

Certain information regarding executive officers is included under the caption “Executive Officers of First
Commonwealth Financial Corporation” after Part I, Item 4, of this Report.

ITEM 11. Executive Compensation

Information called for by this item concerning compensation of First Commonwealth’s executive officers and the
report of the Compensation and Human Resources Committee will be included in the Proxy Statement under the
heading “Executive Compensation,” and is incorporated herein by reference.

Information called for by this item concerning compensation of First Commonwealth’s directors will be included
in the Proxy Statement under the heading “Compensation of Directors,” and is incorporated herein by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

Information called for by this item concerning security ownership of certain beneficial owners and security
ownership of management will be included in the Proxy Statement under the headings “Security Ownership of
Certain Beneficial Owners” and “Securities Owned by Directors and Management,” and is incorporated herein
by reference.

120

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters (Continued)

The following table provides information related to our existing equity compensation plans as of December 31,
2011:

Plan Category(1)

Equity compensation plans approved by security holders . . . . .
Equity compensation plans not approved by security

Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights

Weighted average
exercise price of
outstanding
options, warrants
and rights

Number of
securities
remaining
available for
future issuance
under equity
compensation
plans

276,877

$12.15

4,810,369

holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

N/A

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

276,877

N/A

$12.15

N/A

4,810,369

(1) The table does not include information on stock options issued by First Commonwealth in substitution for
stock options of GA Financial, Inc. and Pittsburgh Financial Corporation upon the acquisition of those
companies. At December 31, 2011, 219,986 shares of common stock are issuable upon exercise of substitute
stock options issued in connection with those acquisitions with a weighted average exercise price of $7.36.
First Commonwealth cannot grant additional stock options or other equity awards under the GA Financial or
Pittsburgh Financial equity compensation plans.

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

Information called for by this item concerning transactions with related persons and review, approval or
ratification of transactions with related persons will be included in the Proxy Statement under the heading
“Related Party Transactions,” and is incorporated herein by reference.

Information called for by this item concerning director independence will be included in the Proxy Statement
under the heading “Corporate Governance,” and is incorporated herein by reference.

ITEM 14. Principal Accountant Fees and Services

Information called for by this item concerning fees paid to First Commonwealth’s principal accountant and First
Commonwealth’s pre-approval policies and procedures will be included in the Proxy Statement under the
heading “Annual Audit Information,” and is incorporated herein by reference.

121

PART IV

ITEM 15. Exhibits, Financial Statements and Schedules

(A) Documents Filed as Part of this Report

(1) Financial Statements

All financial statements of the registrant as set forth under Item 8 of the Report on Form 10-K.

(2) Financial Statement Schedules

Schedule
Number

Description

I
II

Indebtedness to Related Parties
Guarantees of Securities of Other Issuers

(3) Exhibits

Exhibit
Number Description

Page

N/A
N/A

Incorporated by Reference to

3.1

3.2

10.1

10.2

10.3

10.4

10.5

Amended and Restated Articles of Incorporation
of First Commonwealth Financial Corporation

Exhibit 3.1 to the quarterly report on Form 10-Q
for the quarter ended June 30, 2010

Amended and Restated By-Laws of First
Commonwealth Financial Corporation

Exhibit 3.1 to the current report as Form 8-K
filed January 20, 2011

Change of Control Agreement dated October 18,
2005 entered into between FCFC and Sue A.
McMurdy

Amended and Restated Non-Qualified Deferred
Compensation Plan (formerly known as the
Supplemental Executive Retirement Plan)

Exhibit 10.3 to the annual report on Form 10-K
filed February 29, 2008

Filed herewith.

Employment Agreement dated October 19, 2007
entered into between FCFC and T. Michael Price

Exhibit 10.9 to the annual report on Form 10-K
filed February 29, 2008

Change of Control Agreement dated December
30, 2011 entered into between FCFC and
T. Michael Price

First Commonwealth Financial Corporation
Incentive Compensation Plan

10.6

2009-2011 Long Term Incentive Plan

10.7

2011 Annual Incentive Plan

10.8

2011-2013 Long Term Incentive Plan

Exhibit 10.3 to the current report on Form 8-K
filed January 5, 2012

Annex I to Proxy Statement filed March 16,
2009 relating to the 2009 Annual Meeting of
Shareholders

Exhibit 10.2 to the quarterly report on
Form 10-Q filed May 7, 2009

Exhibit 10.1 to the quarterly report on
Form 10-Q filed May 10, 2011

Exhibit 10.2 to the quarterly report on
Form 10-Q filed May 10, 2011

10.9

Employment Agreement dated January 22, 2010
entered into between FCFC and Robert E. Rout

Exhibit 10.1 to the current report on
Form 8-K filed January 28, 2010

10.10 Restricted Stock Agreement dated January 22,
2010 entered into between FCFC and Robert E.
Rout

Exhibit 10.2 to the current report on
Form 8-K filed January 28, 2010

122

ITEM 15. Exhibits, Financial Statements and Schedules (Continued)

Exhibit
Number Description

10.11 Change of Control Agreement dated

December 30, 2011 entered into between FCFC
and Robert E. Rout

Incorporated by Reference to

Exhibit 10.4 to the current report on Form 8-K
filed January 5, 2012

10.12 Change of Control Agreement dated

Filed herewith

December 30, 2011 entered into between FCFC
and I. Robert Emmerich

10.13 Change of Control Agreement dated

Filed herewith

December 30, 2011 entered into between FCFC
and Leonard V. Lombardi

10.14 Change of Control Agreement dated

Filed herewith

December 30, 2011 entered into between FCFC
and Matthew C. Tomb

10.15 Restricted Stock Agreement dated April 1, 2011
entered into between FCFC and I. Robert
Emmerich

Filed herewith

10.16

10.17

Separation Agreement and General Release
dated April 25, 2011 entered into between FCFC
and David R. Tomb, Jr.

Separation Agreement and General Release
dated April 25, 2011 entered into between FCFC
and R. John Previte

10.18 Agreement and General Release dated

September 9, 2011 entered into between FCFC
and Thaddeus J. Clements

10.19 Agreement and General Release dated December

5, 2011 entered into between FCFC and John J.
Dolan

Exhibit 10.1 to the quarterly report on
Form 10-Q filed August 5, 2011

Exhibit 10.2 to the quarterly report on
Form 10-Q filed August 5, 2011

Exhibit 10.1 to the quarterly report on
Form 10-Q filed November 9, 2011

Exhibit 10.1 to the current report on Form 8-K
filed December 7, 2011

21.1

23.1

31.1

31.2

32.1

32.2

Subsidiaries of the Registrant

Consent of KPMG LLP Independent Registered
Public Accounting Firm

Filed herewith

Filed herewith

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

Filed herewith

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

Filed herewith

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

Filed herewith

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

Filed herewith

101

Interactive Data File (XBRL)

Furnished herewith

123

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in Indiana,
Pennsylvania.

FIRST COMMONWEALTH FINANCIAL CORPORATION
(Registrant)

By:

/S/ T. MICHAEL PRICE

T. Michael Price
President and Chief Executive Officer

Dated: March 5, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature

Capacity

Date

/S/

JULIE A. CAPONI
Julie A. Caponi

/S/ RAY T. CHARLEY

Ray T. Charley

/S/ GARY R. CLAUS

Gary R. Claus

Director

Director

Director

March 5, 2012

March 5, 2012

March 5, 2012

/S/ DAVID S. DAHLMANN

Director, Chairman

March 5, 2012

David S. Dahlmann

/S/

JOHNSTON A. GLASS
Johnston A. Glass

Director

March 5, 2012

/S/ DAVID W. GREENFIELD

Director

March 5, 2012

David W. Greenfield

/S/ LUKE A. LATIMER

Luke A. Latimer

/S/

JAMES W. NEWILL
James W. Newill

/S/ T. MICHAEL PRICE

T. Michael Price

/S/ ROBERT E. ROUT

Robert E. Rout

/S/ LAURIE S. SINGER

Laurie S. Singer

Director

Director

President and Chief Executive
Officer (Principal Executive
Officer)

March 5, 2012

March 5, 2012

March 5, 2012

Executive Vice President, Chief
Financial Officer, and Treasurer

March 5, 2012

Director

March 5, 2012

/S/ ROBERT J. VENTURA

Director

March 5, 2012

Robert J. Ventura

124

Exhibit 21.1 Subsidiaries of First Commonwealth Financial Corporation

Percent Ownership
By Registrant

First Commonwealth Bank
22 North Sixth Street
Indiana, PA 15701
Incorporated under the laws of Pennsylvania

Subsidiaries of First Commonwealth Bank:
First Commonwealth Insurance Agency
22 North Sixth Street
Indiana, PA 15701
Incorporated under the laws of Pennsylvania

First Commonwealth Home Mortgage, LLC
111 S. Main Street
Greensburg, PA 15601
Incorporated under the laws of Pennsylvania

First Commonwealth Preferred, LLC
1105 N. Market Street, Suite 1300
Wilmington, DE 19801
Incorporated under the laws of Delaware

First Commonwealth Community Development Corporation (Inactive)
654 Philadelphia Street
Indiana, PA 15701
Incorporated under the laws of Pennsylvania

First Commonwealth Financial Advisors Incorporated
22 North Sixth Street
Indiana, PA 15701
Incorporated under the laws of Pennsylvania

FraMal Holdings Corporation
1105 North Market Street, Suite 1300
Wilmington, DE 19899
Incorporated under the laws of Delaware

First Commonwealth Capital Trust I
22 North Sixth Street
Indiana, PA 15701
Incorporated under the laws of Delaware

First Commonwealth Capital Trust II
22 North Sixth Street
Indiana, PA 15701
Incorporated under the laws of Delaware

First Commonwealth Capital Trust III
22 North Sixth Street
Indiana, PA 15701
Incorporated under the laws of Delaware

Commonwealth Trust Credit Life Insurance Company
2700 North Third Street, Suite 3050
Phoenix, AZ 85004
Incorporated under the laws of Arizona

100%

100%

49.9%

100%

100%

100%

100%

100%

100%

100%

50%

Exhibit 23.1 Consent of Independent Registered Public Accounting Firm

The Board of Directors of First Commonwealth Financial Corporation:

We consent to the incorporation by reference in:

• Registration statement No. 333-165848 on Form S-3 of First Commonwealth Financial Corporation’s

Shelf Registration of Common Stock;

• Registration statement No. 333-154751 on Form S-3 of First Commonwealth Financial Corporation’s

Shelf Registration of Common Stock;

• Registration statement No. 333-111732 on Form S-3 of First Commonwealth Financial Corporation’s

Stock Purchase and Dividend Reinvestment Plan;

• Registration statement No. 333-113534 on Form S-8 of GA Financial, Inc. Stock Option Plan;

• Registration statement No. 333-111735 on Form S-8 of Pittsburgh Financial Corp. Stock Option Plan;

• Registration statement No. 033-55687 on Form S-8 of First Commonwealth Financial Corporation’s

Stock Option Plan; and

• Registration statement No. 333-159090 on Form S-8 of First Commonwealth Financial Corporation’s

Incentive Compensation Plan.

of our reports dated March 5, 2012, with respect to the consolidated statements of financial condition of First
Commonwealth Financial Corporation and subsidiaries as of December 31, 2011 and 2010, and the related
consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the years in
the three-year period ended December 31, 2011, and the effectiveness of internal control over financial reporting
as of December 31, 2011, which reports appear in the December 31, 2011 annual report on Form 10-K of First
Commonwealth Financial Corporation.

Pittsburgh, Pennsylvania
March 5, 2012

/s/ KPMG LLP

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 annual report on Form 10-K 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.

March 5, 2012
Date

/s/ T. Michael Price
Signature

President and Chief Executive Officer

Title

EXHIBIT 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert E. Rout certify that:

1.

I have reviewed this annual report on Form 10-K 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.

March 5, 2012
Date

/s/ Robert E. Rout
Signature

Executive Vice President and Chief Financial Officer

Title

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADDED BY SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

I, T. Michael Price, President and Chief Executive Officer of First Commonwealth Financial Corporation (“First
Commonwealth”), certify that the Annual Report of First Commonwealth on Form 10-K for the period ended
December 31, 2011, 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: March 5, 2012

/s/ T. Michael Price

T. Michael Price
President and Chief Executive Officer

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADDED BY SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

I, Robert E. Rout, Executive Vice President and Chief Financial Officer of First Commonwealth Financial
Corporation (“First Commonwealth”), certify that the Annual Report of First Commonwealth on Form 10-K for
the period ended December 31, 2011, 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: March 5, 2012

/s/ Robert E. Rout

Robert E. Rout
Executive Vice President and Chief Financial Officer

Shareholder Information

Annual Meeting
The Annual Meeting of Shareholders will be held at:
First Commonwealth Place
654 Philadelphia Street, Indiana PA
on Tuesday, April 24, 2012, beginning at 3:00 p.m., Eastern Time.

Common Stock
First Commonwealth Financial Corporation common stock is listed on the New York Stock Exchange
(NYSE) and is traded under the symbol FCF. Current market prices for First Commonwealth Financial
Corporation common stock can be obtained from your local stock broker or by calling the Corporation at
724-349-7220 or 1-800-711-2265.

Transfer Agent
Computershare
480 Washington Boulevard
Jersey City, New Jersey 07310-1900

OR

Computershare
P.O. Box 358015
Pittsburgh, PA 15252-8015

Telephone: 1-866-203-5173
http://www.bnymellon.com/shareowner/equityaccess

Dividend Payments
Subject to the approval of the Board of Directors, quarterly cash dividends are paid in the months of
February, May, August and November.

Dividend Reinvestment
First Commonwealth Financial Corporation’s direct stock purchase and dividend reinvestment plan offers
shareholders an opportunity to reinvest their dividends in additional shares of the Corporation’s common
stock. Once enrolled in the plan, participants may also purchase shares through voluntary cash investments.
For more information on the plan, please call Computershare, at 1-866-203-5173.

Direct Deposit of Dividends
For information about direct deposit of dividends to your U.S. bank account at no charge to you, please visit
www.bnymellon.com/shareowner/equityaccess, or contact Computershare at 1-866-203-5173.

Investor/Shareholder Inquiries
Requests for information or assistance regarding investor/shareholder inquiries should be directed to the
Corporation at 724-349-7220 or 1-800-711-2265 or InvestorRelations@fcbanking.com.

First Commonwealth Financial Corporation 
Old Courthouse Square
22 North Sixth Street
Indiana, Pennsylvania 15701-0400
(724) 349-7220
(800) 711-2265
www.fcbanking.com