First Commonwealth Financial Corporation

Annual Report 2020

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(cid:69)(cid:72)(cid:92)(cid:82)(cid:81)(cid:71)(cid:17)(cid:3)

(cid:50)(cid:81)(cid:3)(cid:69)(cid:72)(cid:75)(cid:68)(cid:79)(cid:73)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:15)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:47)(cid:72)(cid:68)(cid:71)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:55)(cid:72)(cid:68)(cid:80)(cid:15)(cid:3)(cid:82)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:15)(cid:3)(cid:44)(cid:3)
(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:79)(cid:76)(cid:78)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:78)(cid:3)(cid:92)(cid:82)(cid:88)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:92)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:73)(cid:76)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:3)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)
(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:90)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:72)(cid:85)(cid:68)(cid:3)(cid:82)(cid:73)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:17)(cid:3)

(cid:3)

(cid:3)

(cid:3)

(cid:3)

(cid:3)

(cid:54)(cid:76)(cid:81)(cid:70)(cid:72)(cid:85)(cid:72)(cid:79)(cid:92)(cid:15)(cid:3)

(cid:3)

(cid:3)

(cid:3)

(cid:3)

(cid:3)

(cid:55)(cid:17)(cid:3)(cid:48)(cid:76)(cid:70)(cid:75)(cid:68)(cid:72)(cid:79)(cid:3)(cid:51)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)

(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:73)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:90)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:11)(cid:20)(cid:12)(cid:3) Non-GAAP measure; excludes nonrecurring expense of $6.1 million for the branch consolidation and 
voluntary early retirement initiatives as well as $0.9 million for COVID-19 related expenses in 2020 
and $3.5 million of merger and acquisition related expense in 2019.(cid:3)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

☒

☐

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

For the fiscal year ended December 31, 2020

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)
601 PHILADELPHIA STREET

25-1428528
(I.R.S. Employer Identification No.)
15701

INDIANA, PA

(Address of principal executive offices)

(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 x No ¨

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 x

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically 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 such files). Yes x 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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company,"
and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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

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

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

The 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, 2020) was approximately $799,866,969.

The number of shares outstanding of the registrant’s common stock, $1.00 Par Value as of February 25, 2021, was 96,162,202.

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 23, 2021 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
ff
Equity Securities

Common Equity, Related Stockholder Matters and Issuer Purchase of

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 Officer

ff

s 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

ITEM 16.

Form 10-K Summary

Signatures

PAGE

5

15

23

23

23

23

24

25

27

28

49

50

115

115

121

122

122

122

123

123

124

125

126

FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K that are not statements of historical fact constitute forward-
looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), including statements
regarding the potential effects of the ongoing COVID-19 pandemic on our business, financial condition, liquidity and results of
operations, notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be
contained in our future filings with the Securities and Exchange Commission, in press releases, and in oral and written
statements made by us or with our approval that are not statements of historical fact and constitute forward-looking statements
within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of
revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and
other financial items; (ii) statements of plans, objectives and expectations of First Commonwealth or its management or Board
of Directors, including those relating to products, services or operations; (iii) statements of future economic performance; and
(iv) statements of assumptions underlying such statements. Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,”
“estimate,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could” or “may,”
are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause
actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those
discussed in the forward-looking statements include, but are not limited to:
•

Local, regional, national and international economic conditions and the impact they may have on us and our customers and
our assessment of that impact.
Volatility and disruption in national and international financial markets.
Government intervention in the U.S. financial system.
Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs.
Changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and
accounting requirements.
The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the
Federal Reserve Board.
Inflation, interest rate, securities market and monetary fluctuations.
The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and
insurance) with which we and our subsidiaries must comply.
The soundness of other financial institutions.
Political instability.
Impairment of our goodwill or other intangible assets.
Acts of God or of war or terrorism.
The timely development and acceptance of new products and services and perceived overall value of these products and
services by users.
Changes in consumer spending, borrowings and savings habits.
Changes in the financial performance and/or condition of our borrowers.
Technological changes.
The cost and effects of cyber incidents or other failures, interruption or security breaches of our systems or those of third-
party providers.
Acquisitions and integration of acquired businesses.
Our ability to increase market share and control expenses.
Our ability to attract and retain qualified employees.
Changes in the competitive environment in our markets and among banking organizations and other financial service
providers.
The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the
Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard
setters.
Changes in the reliability of our vendors, internal control systems or information systems.
Changes in our liquidity position.
Changes in our organization, compensation and benefit plans.
The impact of the ongoing COVID-19 pandemic and any other pandemic, epidemic or health-related crisis.
The costs and effects of legal and regulatory developments, the resolution of legal proceedings or regulatory or other
governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory
approvals.
Greater than expected costs or difficulties related to the integration of new products and lines of business.
Our success at managing the risks involved in the foregoing items.

•
•
•
•

•

•
•

•
•
•
•
•

•
•
•
•

•
•
•
•

•

•
•
•
•
•

•
•

Further, statements about the potential effects of the ongoing COVID-19 pandemic on our business, financial condition,
liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects
may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future

3

developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the
pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the
pandemic on our customers, clients, third parties and us.

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

4

PART I

ITEM 1.

Overview

Business

First Commonwealth Financial Corporation (“First Commonwealth,” the “Company” or “we”) is a financial holding company
headquartered in Indiana, Pennsylvania. First Commonwealth's subsidiaries include, First Commonwealth Bank ("FCB" or the
"Bank"), First Commonwealth Insurance Agency, Inc. ("FCIA"), FRAMAL and First Commonwealth Financial Advisors, Inc
("FCFA"). We provide a diversified array of consumer and commercial banking services through our bank subsidiary, FCB.
We also provide trust and wealth management services and offer insurance products through FCB and our other operating
subsidiaries. At December 31, 2020, we had total assets of $9.1 billion, total loans of $6.8 billion, total deposits of $7.4 billion
and shareholders’ equity of $1.1 billion. Our principal executive office is located at 601 Philadelphia Street, Indiana,
Pennsylvania 15701, and our telephone number is (724) 349-7220.

FCB is a Pennsylvania bank and trust company. At December 31, 2020, the Bank operated 120 community banking offices
throughout western and central Pennsylvania, and northeastern, central and southwestern Ohio, as well as corporate banking
centers in Pittsburgh, Pennsylvania, and Columbus, Canton and Cleveland, Ohio, and mortgage banking offices in Wexford,
Pennsylvania, and Hudson, Westlake and Lewis Center, Ohio. The Bank also operates a network of 139 automated teller
machines, or ATMs, at various branch offices and offsite locations. All of our ATMs are part of the NYCE 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 55,000 ATMs. The Bank is also a member of the “Freedom ATM Alliance,” which affords
cardholders surcharge-free access to a network of over 350 ATMs in over 50 counties in Pennsylvania, Maryland, New York,
and Ohio.

Historical and Recent Developments

FCB began in 1934 as First National Bank of Indiana. 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, and 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.

We expanded our presence in the Pittsburgh market through the acquisitions of Pittsburgh Savings Bank (dba BankPittsburgh)
in 2003, Great American Federal in 2004 and Laurel Savings Bank in 2006. These acquisitions added 27 branches in
Allegheny and Butler Counties.

We have also 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 prior acquisitions and de novo strategy, FCB operates 46 branches and a corporate banking center in the Pittsburgh
metropolitan statistical area and currently ranks tenth in deposit market share.

In 2015, we expanded into central Ohio through the acquisition of First Community Bank with four branches in the Columbus
area. In 2016, we acquired 13 branches from FirstMerit Bank, National Association, in Canton-Massillon and Ashtabula, Ohio
and in 2017, we acquired DCB Financial Corp ("DCB") and its banking subsidiary The Delaware County Bank and Trust
Company with nine full-service banking offices in the Columbus, Ohio MSA. In 2018, we acquired Garfield Acquisition
Corp., and its banking subsidiary Foundation Bank with five full-service banking offices in the Cincinnati, Ohio area.
Additionally, since 2014, we have expanded our presence in this Ohio market by opening a corporate loan production office in
Columbus, Canton and Cleveland, Ohio, and mortgage loan offices in Hudson, Westlake and Lewis Center, Ohio.

In 2019, we expanded our Pennsylvania markets into State College, Lock Haven, Williamsport and Lewisburg through the
acquisition of 14 branches from Santander Bank, N.A. ("Santander").

Our operating objectives include expansion, diversification within our markets, growth of our fee-based income, and growth
internally and through acquisitions of financial institutions, branches, and financial services businesses. We generally seek
merger or acquisition partners that are culturally similar, have experienced management and possess either significant market
presence or have potential for improved profitability through financial management, economies of scale and expanded services.
We regularly evaluate merger and acquisition opportunities and, from time to time, conduct due diligence activities related to

5

possible transactions with other financial institutions and financial services companies. As a result, merger or acquisition
discussions and, in some cases, negotiations, may take place and future merger acquisitions involving cash, debt or equity
securities may occur. Acquisitions typically involve the payment of a premium over book and market values, and, therefore,
some dilution of First Commonwealth’s tangible book value and net income per common share may occur in connection with
any future transaction. Our ability to engage in certain merger or acquisition transactions, whether or not any regulatory
approval is required, will be dependent upon our bank regulators’ views at the time as to the capital levels, quality of
management and our overall condition and their assessment of a variety of other factors. Certain merger or acquisition
transactions, including those involving the acquisition of a depository institution or the assumption of the deposits of any
depository institution, require formal approval from various bank regulatory authorities, which will be subject to a variety of
factors and considerations.

Loan Portfolio

The Company’s loan portfolio includes several categories of loans that are discussed in detail below.

Commercial, Financial, Agricultural and Other

Commercial, financial, agricultural and other loans represent term loans used to acquire business assets or revolving lines of
credit used to finance working capital. These loans are generally secured by a first lien position on the borrower’s business
assets as a secondary source of repayment. The type and amount of the collateral varies depending on the amount and terms of
the loan, but generally may include accounts receivable, inventory, equipment or other assets. Loans also may be supported by
personal guarantees from the principals of the commercial loan borrowers.

Commercial loans are underwritten for credit-worthiness based on the borrowers’ financial information, cash flow, net worth,
prior loan performance, existing debt levels, type of business and the industry in which it operates. Advance rates on
commercial loans are generally collateral-dependent and are determined based on the type of equipment, the mix of inventory
and the quality of receivables.

Credit risk for commercial loans can arise from a borrower’s inability or unwillingness to repay the loan, and in the case of
secured loans, from a shortfall in the collateral value in relation to the outstanding loan balance in the event of a default and
subsequent liquidation of collateral. The Company’s Credit Policy establishes loan concentration limits by borrower, geography
and industry.

Commercial Real Estate

Commercial real estate loans represent term loans secured by owner-occupied and non-owner occupied properties. Commercial
real estate loans are underwritten based on an evaluation of each borrower’s cash flow as the principal source of loan
repayment, and are generally secured by a first lien on the property as a secondary source of repayment. Our underwriting
process for non-owner occupied properties evaluates the history of occupancy, quality of tenants, lease terms, operating
expenses and cash flow. Commercial real estate loans are subject to the same credit evaluation as previously described for
commercial loans. Approximately 19%, by principal amount, of our commercial real estate loans involve owner-occupied
properties.

For loans secured by commercial real estate, at origination the Company obtains current and independent appraisals from
licensed or certified appraisers to assess the value of the underlying collateral. The Company’s general policy for commercial
real estate loans is to limit the terms of the loans to not more than 10 years with loan-to-value ratios not exceeding 80% on
owner-occupied and income producing properties. For non-owner occupied commercial real estate loans, the loan terms are
generally aligned with the property’s lease terms and are generally underwritten with a loan-to-value ratio not exceeding 75%.

Credit risk for commercial real estate loans can arise from economic conditions that could impact market demand, rental rates
and property vacancy rates and declines in the collateral value in relation to the outstanding loan balance in the event of a
default and subsequent liquidation of collateral.

Real Estate Construction

Real estate construction represents financing for real estate development. The underwriting process for these loans is designed
to confirm that the project will be economically feasible and financially viable and is generally conducted as though the
Company would be providing permanent financing for the project. Development and construction loans are secured by the
properties under development or construction, and personal guarantees are typically obtained as a secondary repayment source.
The Company considers the financial condition and reputation of the borrower and any guarantors and generally requires a
global cash flow analysis in order to assess the overall financial position of the developer.

6

Construction loans to residential builders are generally made for the construction of residential homes for which a binding sales
contract exists and for which the prospective buyers have been pre-qualified for permanent mortgage financing by either third-
party lenders or the Company. These loans are generally for a period of time sufficient to complete construction.

Residential construction loans to individuals generally provide for the payment of interest only during the construction phase.
At the end of the construction phase, substantially all of our loans automatically convert to permanent mortgage loans and can
either be retained in our loan portfolio or sold on the secondary market.

Credit risk for real estate construction loans can arise from construction delays, cost overruns, failure of the contractor to
complete the project to specifications and economic conditions that could impact demand for or supply of the property being
constructed.

Residential Real Estate

Residential real estate loans include first lien mortgages used by the borrower to purchase or refinance a principal residence and
home equity loans and lines of credit secured by residential real estate. The Company’s underwriting process for these loans
determines credit-worthiness based upon debt-to-income ratios, collateral values and other relevant factors.

Credit risk for residential real estate loans can arise from a borrower’s inability or unwillingness to repay the loan or a shortfall
in the value of the residential real estate in relation to the outstanding loan balance in the event of a default and subsequent
liquidation of the real estate collateral.

The residential real estate portfolio includes both conforming and non-conforming mortgage loans. Conforming mortgage loans
represent loans originated in accordance with underwriting standards set forth by the government-sponsored entities, including
the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National
Mortgage Association, which serve as the primary purchasers of loans sold in the secondary mortgage market by mortgage
lenders. These loans are generally collateralized by one-to-four-family residential real estate, have loan-to-collateral value ratios
of 80% or less (or have mortgage insurance to insure down to 80%), and are made to borrowers in good credit standing. Non-
conforming mortgage loans represent loans that generally are not saleable in the secondary market to the government-sponsored
entities due to factors such as the credit characteristics of the borrower, the underlying documentation, the loan-to-value ratio,
or the size of the loan. The Company does not offer “subprime,” “interest-only” or “negative amortization” mortgages.

Home equity lines of credit and other home equity loans are originated by the Company for typically up to 90% of the appraised
value, less the amount of any existing prior liens on the property. Additionally, the Company’s credit policy requires borrower
FICO scores of not less than 661 and a debt-to-income ratio of not more than 43%.

Loans to Individuals

The loans to individuals category includes consumer installment loans, personal lines of credit, consumer credit cards and
indirect automobile and recreational vehicle loans. Credit risk for consumer loans can arise from a borrower’s inability or
unwillingness to repay the loan, and in the case of secured loans, by a shortfall in the value of the collateral in relation to the
outstanding loan balance in the event of a default and subsequent liquidation of collateral.

The underwriting criteria for automobile loans generally allows for such loans to be made for up to 100% of the purchase price
or the retail value of the vehicle as listed by the National Automobile Dealers Association. The terms of the loan are determined
by the age and condition of the collateral, and range from 36 to 84 months. Collision insurance policies are required on all
automobile loans. The Company also makes other consumer loans, which may or may not be secured. The terms of secured
consumer loans generally depend upon the nature of the underlying collateral. Unsecured consumer loans and consumer credit
cards usually do not exceed $35 thousand. Unsecured consumer loans usually have a term of no longer than 36 months.

Deposits

Deposits are our primary source of funds to support our revenue-generating assets. We offer traditional deposit products to
businesses and other customers with a variety of rates and terms. Deposits at our bank are insured by the FDIC up to statutory
limits. We price our deposit products with a view to maximizing our share of each customer’s financial services business and
prudently managing our cost of funds. At December 31, 2020, we held $7.4 billion of total deposits, which consisted of $2.3
billion, or 31%, in non-interest bearing checking accounts, $4.5 billion, or 61%, in interest bearing checking accounts, money
market and savings accounts, and $0.6 billion, or 8%, in CDs and IRAs.

7

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, higher
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 or taxation than banks.

Human Capital Resources

Our employees are key to First Commonwealth’s success as an organization. We are committed to attracting, retaining and
promoting top quality talent regardless of sex, sexual orientation, gender identity, race, color, national origin, age, religion and
physical ability. We strive to identify and select the best candidates for all open positions based on qualifying factors for each
job. We are dedicated to providing a workplace for our employees that is inclusive, supportive, and free of any form of
discrimination or harassment; rewarding and recognizing our employees based on their individual results and performance; and
recognizing and respecting all of the characteristics and differences that make each of our employees unique. At December 31,
2020, First Commonwealth and its subsidiaries employed 1,323 full-time employees and 70 part-time employees.

Our team strives to live our core values of accountability, customer service, integrity, excellence and inclusion, while delivering
our Customer Service Promise. Our Customer Service Promise represents five critical behaviors designed to create an
extraordinary customer experience: put customers first, be relentless, inspire confidence, champion simplicity and obsess with
yes.

As we navigated the COVID-19 crisis throughout 2020, the safety and well-being of our employees, customers, partners, and
communities remained our top priority. To protect the health and financial security of our employees, the Company directed
and enabled approximately 40% of its workforce to work-from-home and relocated onsite employees to create physical
separation within departments and between individual employees. We also enhanced our cleaning protocols, provided personal
protective equipment to our employees, required face coverings for employees and customers, conducted temperature screening
and took other measures to comply with directives of state and local health departments. In addition, we provided up to 40
hours of additional paid time off to employees who work onsite, offered no-interest loans up to $2,000 to all employees, and
provided no-cost COVID-19 treatment under the Company’s medical plan. Communication with our employees was a priority
through weekly leadership messaging and frequent COVID-19 updates. Employees had direct connection to get their questions
answered through an internal COVID-19 Hotline and a streamlined approach to help those with positive test results.

We also continued to strengthen our commitment to diversity and inclusion in 2020. Our CEO and leadership team responded
to racial injustice by leadership messaging and having conversations with employees of color to listen with understanding. We
took an active approach to provide training and have meaningful conversations at the highest levels in the organization and
provided financial support to organizations that address anti-racism education or programming. Our objective of creating an
environment that encourages diversity and inclusion was best measured by our 2020 employee engagement survey in which
employees rated diversity & inclusion as the highest rated category. In 2020, we have made progress toward our internal goals
of increasing the representation of racial minorities, individuals with disabilities and veterans within our workforce and women
who serve in leadership positions.

Supervision and Regulation

The following discussion sets forth the material elements of the regulatory framework applicable to financial holding
companies, such as First Commonwealth, and their 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

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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. In reviewing applications seeking approval of merger and acquisition transactions, the bank regulatory
authorities will consider, among other things, the competitive effect and public benefits of the transactions, the financial,
including capital, position of the combined organization, the risks to the stability of the U.S. banking or financial system, the
applicant's performance record under the Community Reinvestment Act ("CRA") and its compliance with fair housing and
other consumer protection laws and the effectiveness of the subject organizations in combating money laundering activities.

Banking Holding Company Activities. In general, the BHC Act limits the business of bank holding companies to banking,
managing or controlling banks and other activities that the FRB has determined to be so closely related to banking as to be a
proper incident thereto. In addition, bank holding companies that qualify and elect to be financial holding companies such as
First Commonwealth may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is
either (i) financial in nature or incidental to such financial activity or (ii) complementary to a financial activity and does not
pose a substantial risk to the safety and soundness of depository institutions or the financial system generally, without in either
case the prior approval of the FRB. Activities that are financial in nature include securities underwriting and dealing, insurance
agency activities and making merchant banking investments.

To maintain financial holding company status, a financial holding company and all of its depository institution subsidiaries
must be well capitalized and well managed. A depository institution subsidiary is considered to be well capitalized if it satisfies
the requirements for this status discussed in the section below captioned "Prompt Corrective Action." A depository institution
subsidiary is considered well managed if it received a composite rating and management rating of at least satisfactory in its
most recent examination. A financial holding company’s status will also depend upon maintaining its status as well capitalized
and well managed under applicable FRB regulations. If a financial holding company ceases to meet these capital and
management requirements, the FRB’s regulations provide that the financial holding company must enter into an agreement with
the FRB to comply with all applicable capital and management requirements. Until the financial holding company returns to
compliance, the FRB may impose limitations or conditions on the conduct of its activities, and the company may not commence
any of the broader financial activities permissible for financial holding companies or acquire a company engaged in such
financial activities without prior approval of the FRB. If the company does not return to compliance within 180 days, the FRB
may require divestiture of the holding company’s depository institutions.

In order for a financial holding company to commence any new activity permitted by the BHC Act or to acquire a company
engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding
company must have received a rating of at least satisfactory in its most recent examination under the CRA.

The FRB has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its
ownership or control of any subsidiary when the FRB has reasonable grounds to believe that continuation of such activity or
such ownership or control constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of the
bank holding company.

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.

Source of Strength Doctrine. FRB policy and federal law require bank holding companies to act as a source of financial and
managerial strength to their subsidiary banks. 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. Transactions between FCB, on the one hand, and First Commonwealth and its other subsidiaries, on the
other hand, are regulated under federal banking laws. The Federal Reserve Act imposes quantitative and qualitative
requirements and collateral requirements on covered transactions by FCB with, or for the benefit of, its affiliates, and generally
requires those transactions to be on terms at least as favorable to FCB as if the transaction were conducted with an unaffiliated
third party. Covered transactions are defined by statute to include a loan or extension of credit, as well as a purchase of
securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the FRB) from the affiliate, certain
derivative transactions that create a credit exposure to an affiliate, the acceptance of securities issued by the affiliate as
collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. In general, any such
transaction by FCB (or its subsidiaries) must be limited to certain thresholds on an individual and aggregate basis and, for credit
transactions with any affiliate, must be secured by designated amounts of specified collateral.

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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 Regulation

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 Securities and is required to furnish quarterly reports to both agencies. The approval
of the Pennsylvania Department of Banking and Securities and FDIC is also required for FCB to establish additional branch
offices or merge with or acquire another banking institution.

Dividends. First Commonwealth is a legal entity separate and distinct from its banking and other subsidiaries. As a bank
holding company, First Commonwealth is subject to certain restrictions on its ability to pay dividends under applicable banking
laws and regulations. Federal bank regulators are authorized to determine under certain circumstances relating to the financial
condition of a bank holding company or a bank that the payment of dividends would be an unsafe or unsound practice and to
prohibit payment thereof. In particular, federal bank regulators have stated that paying dividends that deplete a banking
organization’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking
organizations should generally pay dividends only out of current operating earnings.

A significant portion of our income comes from dividends from our bank, which is also the primary source of our liquidity. In
addition to the restrictions discussed above, our bank is subject to limitations under Pennsylvania law regarding the level of
dividends that it may pay to us. In general, 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 and Securities. FCB has not reduced its surplus through the payment of dividends. As
of December 31, 2020, FCB could pay dividends to First Commonwealth of $295.9 million without reducing its capital levels
below "well capitalized" levels and without the approval of the Pennsylvania Department of Banking and Securities.

Community Reinvestment. Under the Community Reinvestment Act ("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.

In December 2019, the FDIC and the Office of the Comptroller of the Currency (“OCC”) jointly proposed rules that would
significantly change existing CRA regulations. The proposed rules are intended to increase bank activity in low- and moderate-
income communities where there is significant need for credit, more responsible lending, greater access to banking services,
and improvements to critical infrastructure. The proposals change four key areas: (i) clarifying what activities qualify for CRA
credit; (ii) updating where activities count for CRA credit; (iii) providing a more transparent and objective method for
measuring CRA performance; and (iv) revising CRA-related data collection, record keeping, and reporting. We will continue
to monitor the proposed rules and evaluate the impact of any changes to the regulations implementing the CRA on our business.

Consumer Financial Protection. We are subject to a number of federal and state consumer protection laws that extensively
govern our relationship with our customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting
Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability
Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt
Collection Practices Act, the Service Members Civil Relief Act and these laws’ respective state-law counterparts, as well as
state usury laws and laws regarding unfair and deceptive acts and practices. These and other federal laws, among other things,
require disclosures of the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit
discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, prohibit
unfair, deceptive and abusive practices, restrict our ability to raise interest rates and subject us to substantial regulatory
oversight. Violations of applicable consumer protection laws can result in significant potential liability from litigation brought
by customers, including actual damages, restitution and attorneys’ fees. Federal bank regulators, state attorneys general and
state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and
other remedies, including regulatory sanctions, customer rescission rights, action by the state and local attorneys general in each
jurisdiction in which we operate and civil money penalties. Failure to comply with consumer protection requirements may also

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result in our failure to obtain any required bank regulatory approval for merger or acquisition transactions we may wish to
pursue or our prohibition from engaging in such transactions even if approval is not required.

The Consumer Financial Protection Bureau ("CFPB"), has broad rulemaking, supervisory and enforcement powers under
various federal consumer financial protection laws. Although all institutions are subject to rules adopted by the CFPB and
examination by the CFPB in conjunction with examinations by the institution’s primary federal regulator, the CFPB has
primary examination and enforcement authority over institutions with assets of $10 billion or more. The FDIC has primary
responsibility for examination of our bank and enforcement with respect to federal consumer protection laws so long as our
bank has total consolidated assets of less than $10 billion, and state authorities are responsible for monitoring our compliance
with all state consumer laws. The CFPB also has the authority to require reports from institutions with less than $10 billion in
assets, such as our bank, to support the CFPB in implementing federal consumer protection laws, supporting examination
activities, and assessing and detecting risks to consumers and financial markets.

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”). Deposit insurance assessments are based upon average total assets
minus average total equity. 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. As an institution with less than $10 billion in assets, FCB’s assessment rates are
based on its risk classification (i.e., the level of risk it poses to the FDIC’s deposit insurance fund). For institutions with $10
billion or more in assets, assessment rates are calculated using a scorecard that combines the supervisory risk ratings of the
institution with certain forward-looking financial measures. These assessment rates are subject to adjustments based upon the
insured depository institution’s ratio of long-term unsecured debt to the assessment base, long-term unsecured debt issued by
other insured depository institutions to the assessment base, and brokered deposits to the assessment base. However, the
adjustments based on brokered deposits to the assessment base will not apply so long as the institution is well capitalized and
has a composite CAMELS rating of 1 or 2. The CAMELS rating system is a bank rating system where bank supervisory
authorities rate institutions according to six factors: capital adequacy, asset quality, management quality, earnings, liquidity and
sensitivity to market risk. The FDIC may make additional discretionary assessment rate adjustments.

Capital Requirements

First Commonwealth and FCB are each required to comply with applicable capital adequacy standards established by the FRB.

In July 2013, the federal bank regulators approved final rules (the “Basel III Capital Rules”) implementing the Basel III
framework as well as certain provisions of the Dodd-Frank Act. Since fully phased in on January 1, 2019, the Basel III Capital
Rules require First Commonwealth and FCB to maintain the following:

•

•

•

•

A minimum ratio of Common Equity Tier 1 (“CET1”) to risk-weighted assets of at least 4.5%, plus a 2.5% “capital
conservation buffer” (resulting in a minimum ratio of CET1 to risk-weighted assets of 7.0%);
A minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer
(resulting in a minimum Tier 1 capital ratio of 8.5%);
A minimum ratio of total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets of at least 8.0%, plus the
capital conservation buffer (resulting in a minimum total capital ratio of 10.5%); and
A minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average consolidated assets as reported
on consolidated financial statements (known as the “leverage ratio”).

Banking institutions that fail to meet the effective minimum ratios once the capital conservation buffer is taken into account, as
detailed above, will be subject to constraints on capital distributions, including dividends and share repurchases, and certain
discretionary executive compensation. The severity of the constraints depends on the amount of the shortfall and the
institution’s “eligible retained income” (that is, four quarter trailing net income, net of distributions and tax effects not reflected
in net income).

The Basel III Capital Rules provide for a number of deductions from and adjustments to CET1. These include, for example, the
requirement that mortgage servicing rights, deferred tax assets arising from temporary differences that could not be realized
through net operating loss carrybacks 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.
During 2015, First Commonwealth and FCB made a one-time permanent election, as permitted under Basel III Capital Rules, to
exclude the effects of accumulated other comprehensive income items for the purposes of determining regulatory capital ratios.

With respect to FCB, the Basel III Capital Rules also revise the “prompt corrective action” regulations pursuant to Section 38 of
the Federal Deposit Insurance Act, as discussed below under “Prompt Corrective Action.” The Basel III Capital Rules prescribe

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a standardized approach for risk weightings that expand the risk-weighting categories from the general risk-based capital rules
to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from
0% for U.S. government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a
variety of asset categories.

Liquidity Requirements

The Basel III liquidity framework requires banks and bank holding companies to measure their liquidity against specific
liquidity tests. 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 test,
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. Rules applicable to certain large banking organizations have
been implemented for LCR and proposed for NSFR; however, based on our asset size, these rules do not currently apply to First
Commonwealth and FCB.

Prompt Corrective Action

The Federal Deposit Insurance Act, as amended (“FDIA”), requires, among other things, the federal banking agencies to take
“prompt corrective action” in respect of depository institutions that do not meet minimum capital requirements. The FDIA
includes the following five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly
undercapitalized” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital
levels compare with various relevant capital measures and certain other factors, as established by regulation. The relevant
capital measures are the total capital ratio, the CET1 capital ratio (a new ratio requirement under the Basel III Capital Rules),
the Tier 1 capital ratio and the leverage ratio.

A bank will be (i) “well capitalized” if the institution has a total risk-based capital ratio of 10.0% or greater, a CET1 capital
ratio of 6.5% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, and a leverage ratio of 5.0% or greater, and is not
subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any
capital measure; (ii) “adequately capitalized” if the institution has a total risk-based capital ratio of 8.0% or greater, a CET1
capital ratio of 4.5% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a leverage ratio of 4.0% or greater and is
not “well capitalized”; (iii) “undercapitalized” if the institution has a total risk-based capital ratio that is less than 8.0%, a CET1
capital ratio less than 4.5%, a Tier 1 risk-based capital ratio of less than 6.0% or a leverage ratio of less than 4.0%; (iv)
“significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6.0%, a CET1 capital ratio less
than 3%, a Tier 1 risk-based capital ratio of less than 4.0% or a leverage ratio of less than 3.0%; and (v) “critically
undercapitalized” if the institution’s tangible equity is equal to or less than 2.0% of average quarterly tangible assets. An
institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is
determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain
matters. A bank’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the
capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other
purposes.

The FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend)
or paying any management fee to its parent holding company if the depository institution would thereafter be
“undercapitalized.” “Undercapitalized” institutions are subject to growth limitations and are required to submit a capital
restoration plan. The agencies may not accept such a plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the depository institution’s capital. In addition, for a capital restoration
plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with
such capital restoration plan and must also provide appropriate assurances of performance. The aggregate liability of the parent
holding company is limited to the lesser of (i) an amount equal to 5.0% of the depository institution’s total assets at the time it
became undercapitalized and (ii) the amount which is necessary (or would have been necessary) to bring the institution into
compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If
a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.”

In addition, the FDIA prohibits an insured depository institution from accepting brokered deposits or offering interest rates on
any deposits significantly higher than the prevailing rate in the bank's normal market area or nationally (depending upon where
the deposits are solicited), unless it is well capitalized or is adequately capitalized and receives a waiver from the FDIC. A
depository institution that is adequately capitalized and accepts brokered deposits under a waiver from the FDIC may not pay
an interest rate on any deposit in excess of 75 basis points over certain prevailing market rates.

“Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including
orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, and cessation of

12

receipt of deposits from correspondent banks. “Critically undercapitalized” institutions are subject to the appointment of a
receiver or conservator.

The appropriate federal banking agency may, under certain circumstances, reclassify a well-capitalized insured depository
institution as adequately capitalized. The FDIA provides that an institution may be reclassified if the appropriate federal
banking agency determines (after notice and opportunity for hearing) that the institution is in an unsafe or unsound condition or
deems the institution to be engaging in an unsafe or unsound practice.

The appropriate agency is also permitted to require an adequately capitalized or undercapitalized institution to comply with the
supervisory provisions as if the institution were in the next lower category (but not treat a significantly undercapitalized
institution as critically undercapitalized) based on supervisory information other than the capital levels of the institution.

First Commonwealth believes that, as of December 31, 2020, FCB was a “well-capitalized” bank as defined by the FDIA. See
Note 24 “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.

The Volcker Rule

The Dodd-Frank Act prohibits banks and their affiliates from engaging in proprietary trading and investing in and sponsoring
hedge funds and private equity funds (so called "covered funds"). The statutory provision is commonly called the “Volcker
Rule.” Banks with less than $10 billion in total consolidated assets, such as FCB, are exempt from the Volker Rule.

Depositor Preference

Under federal law, depositors (including the FDIC with respect to the subrogated claims of insured depositors) and certain
claims for administrative expenses of the FDIC as receiver would be afforded a priority over other general unsecured claims
against such an institution in the liquidation or other resolution of such an institution by any receiver.

Interchange Fees

Under the Durbin Amendment to the Dodd-Frank Act, the FRB adopted rules establishing standards for assessing whether the
interchange fees that may be charged with respect to certain electronic debit transactions are “reasonable and proportional” to
the costs incurred by issuers for processing such transactions. Interchange fees, or “swipe” fees, are charges that merchants pay
to us and other card-issuing banks for processing electronic payment transactions. Under the final rules, the maximum
permissible interchange fee is equal to no more than 21 cents plus 5 basis points of the transaction value for many types of debit
interchange transactions. The FRB also adopted a rule to allow a debit card issuer to recover 1 cent per transaction for fraud
prevention purposes if the issuer complies with certain fraud-related requirements required by the FRB. The FRB also has rules
governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or
prepaid product.

The Dodd-Frank Act contained an exemption from the interchange fee cap for any debit card issuer that, together with its
affiliates, has total assets of less than $10 billion as of the end of the previous calendar year. We currently qualify for this
exemption. We earned approximately $24.0 million in card related interchange income during the 2019 fiscal year. If we did
not qualify for this exemption, we estimate that our interchange income would have been approximately $13.2 million,
representing a $10.7 million reduction due to the cap on interchange fees. We would become subject to the interchange fee cap
beginning July 1 of the year following the time when the level of our total assets reaches or exceeds $10 billion.

Financial Privacy

The federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public
information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers
and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party.
These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to
outside vendors.

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. Financial institutions are

13

also prohibited from entering into specified financial transactions and account relationships and must use enhanced due
diligence procedures in their dealings with certain types of high-risk customers and implement a written customer identification
program. Financial institutions must take certain steps to assist government agencies in detecting and preventing money
laundering and report certain types of suspicious transactions. Regulatory authorities routinely examine financial institutions
for compliance with these obligations, and 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, including causing applicable bank regulatory authorities not to approve
merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not
required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be
violating these obligations.

Office of Foreign Assets Control Regulation

The U.S. Treasury Department’s Office of Foreign Assets Control ("OFAC") administers and enforces economic and trade
sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign
countries, nationals and others. OFAC publishes lists of specially designated targets and countries. First Commonwealth is
responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting
unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure to
comply with these sanctions could have serious legal and reputational consequences, including causing applicable bank
regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such
transactions even if approval is not required.

Cybersecurity

In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial
institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk
management processes also address the risk posed by compromised customer credentials, including security measures to
reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a
financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid
recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A
financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and
address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type
of cyber-attack. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including
financial penalties.

State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.
Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs
and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have
also recently implemented or modified their data breach notification and data privacy requirements. We expect this trend of
state-level activity in those areas to continue, and are continually monitoring developments in the states in which our customers
are located.

In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations
and to store sensitive data. We employ an in-depth, layered, defensive approach that leverages people, processes and technology
to manage and maintain cybersecurity controls. We employ a variety of preventative and detective tools to monitor, block, and
provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding
the strength of our defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in
volume, and attackers respond rapidly to changes in defensive measures. While to date we have not experienced a significant
compromise, significant data loss or any material financial losses related to cybersecurity attacks, our systems and those of our
customers and third-party service providers are under constant threat and it is possible that we could experience a significant
event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future
due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of internet banking,
mobile banking and other technology-based products and services by us and our customers. See Item 1A. Risk Factors for a
further discussion of risks related to cybersecurity.

Future Legislation and Regulation

Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state
legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in
those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the
manner in which existing regulations are applied. The substance or impact of pending or future legislation or regulation, or the
application thereof, cannot be predicted, although enactment of the proposed legislation could impact the regulatory structure

14

under which we operate and may significantly increase our costs, impede the efficiency of our internal business processes,
require us to increase our regulatory capital and modify our business strategy, and limit our ability to pursue business
opportunities in an efficient manner. Our business, financial condition, results of operations or prospects may be adversely
affected, perhaps materially, as a result.

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.

ITEM 1A.

Risk Factors

An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that
management believes affect us are described below. Before making an investment decision, you should carefully consider the
risks and uncertainties described below together with all of the other information included or incorporated by reference in this
report. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that
management is not aware of or focused on or that management currently deems immaterial may also impair our business
operations. This report is qualified in its entirety by these risk factors. If any of the following risks actually occur, our business,
financial condition and results of operations could be materially and adversely affected. If this were to happen, the market price
of our common stock could decline significantly, and you could lose all or part of your investment.

Risks Related To Our Business

Interest Rate Risks

We Are Subject to Interest Rate Risk

Our earnings and cash flows are largely dependent upon our net interest income. Net interest income is the difference between
interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing
liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond our control,
including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the
Federal Open Market Committee. Changes in monetary policy, including changes in interest rates, could influence not only the
interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but such changes
could also affect (i) our ability to originate loans and obtain deposits, (ii) the fair value of our financial assets and liabilities, and
(iii) the average duration of our mortgage-backed securities portfolio. If the interest rates paid on deposits and other borrowings
increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore
earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other
investments fall more quickly than the interest rates paid on deposits and other borrowings. Some foreign central banks have
moved to a negative interest rate environment, which has exerted downward pressure on the profitability of banks in those
regions and this interest rate trend could extend to the United States. Any substantial, unexpected, or prolonged change in
market interest rates could have a material adverse effect on our business, financial condition and results of operations. See Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations under the section captioned “Net
Interest Income” and Item 7A. Quantitative and Qualitative Disclosures About Market Risk elsewhere in this report for further
discussion related to interest rate sensitivity and our management of interest rate risk.

We May Be Adversely Impacted by the Transition from LIBOR as a Reference Rate

In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to
submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”). In November 2020, the administrator of
LIBOR announced it will consult on its intention to extend the retirement date of certain offered rates whereby the publication
of the one week and two month LIBOR offered rates will cease after December 31, 2021; but, the publication of the remaining
LIBOR offered rates will continue until June 30, 2023. Given consumer protection, litigation, and reputation risks, the bank

15

regulatory agencies have indicated that entering into new contracts that use LIBOR as a reference rate after December 31, 2021,
would create safety and soundness risks and that they will examine bank practices accordingly. Therefore, the agencies
encouraged banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable and in any
event by December 31, 2021.

It is not possible to predict what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such
changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments. In particular, regulators,
industry groups and certain committees (e.g., the Alternative Reference Rates Committee) have, among other things, published
recommended fall-back language for LIBOR-linked financial instruments, identified recommended alternatives for certain
LIBOR rates (e.g., AMERIBOR or the Secured Overnight Financing Rate as the recommended alternative to U.S. Dollar
LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments. At this time, it is not
possible to predict whether these specific recommendations and proposals will be broadly accepted, whether they will continue
to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments.

We have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are
either directly or indirectly dependent on LIBOR. The transition from LIBOR has resulted in and could continue to result in
added costs and employee efforts and could present additional risk. Since proposed alternative rates are calculated differently,
payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our
market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies.
Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation.
Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately
manage the transition could have a material adverse effect on our business, financial condition and results of operations.

Credit and Lending Risks

We Are Subject to Lending Risk

There are inherent risks associated with our lending activities. These risks include, among other things, the impact of changes in
interest rates and changes in the economic conditions in the markets where we operate as well as those across the United States.
Increases in interest rates and/or weakening economic conditions could adversely impact the ability of borrowers to repay
outstanding loans or the value of the collateral securing these loans.

We Are Subject to Risk Arising from Conditions in the Commercial Real Estate Market

As of December 31, 2020, commercial real estate mortgage loans comprised approximately 33% of our loan portfolio.
Commercial real estate mortgage loans generally involve a greater degree of credit risk than residential real estate mortgage
loans because they typically have larger balances and are more affected by adverse conditions in the economy. Because
payments on loans secured by commercial real estate often depend upon the successful operation and management of the
properties and the businesses which operate from within them, repayment of such loans may be affected by factors outside the
borrower’s control, such as adverse conditions in the real estate market or the economy or changes in government regulations.
In recent years, commercial real estate markets have been experiencing substantial growth, and increased competitive pressures
have contributed significantly to historically low capitalization rates and rising property values. Furthermore, commercial real
estate markets have been particularly impacted by the economic disruption resulting from the COVID-19 pandemic.
Accordingly, the federal banking regulatory agencies have expressed concerns about weaknesses in the current commercial real
estate market. Failures in our risk management policies, procedures and controls could adversely affect our ability to manage
this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio,
which, accordingly, could have a material adverse effect on our business, financial condition and results of operations.

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 represents management’s best estimate of credit losses within the existing
portfolio of loans. The allowance, in the judgment of management, is appropriate 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 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
or forecasts, 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 or losses, and possibly risk-based capital, and may have a
material adverse effect on our financial condition and results of operations.

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Liquidity Risk

We Are Subject to Liquidity Risk

We require liquidity to meet our deposit and debt obligations as they come due. Our access to funding sources in amounts
adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically or
the financial services industry or economy generally. Factors that could reduce our access to liquidity sources include a
downturn in the economy, difficult credit markets or adverse regulatory actions against us. Our access to deposits may also be
affected by the liquidity needs of our depositors. In particular, a substantial majority of our liabilities are demand, savings,
interest checking and money market deposits, which are payable on demand or upon several days’ notice, while by comparison,
a substantial portion of our assets are loans, which cannot be called or sold in the same time frame. We may not be able to
replace maturing deposits and advances as necessary in the future, especially if a large number of our depositors sought to
withdraw their accounts, regardless of the reason. A failure to maintain adequate liquidity could have a material adverse effect
on our business, financial condition and results of operations.

Operational Risks

Our Accounting Estimates and Risk Management Processes Rely On Analytical and Forecasting Models

The processes we use to estimate our expected credit losses and to measure the fair value of financial instruments, as well as the
processes used to estimate the effects of changing interest rates and other market measures on our financial condition and
results of operations, depends upon the use of analytical and forecasting models. These models reflect assumptions that may not
be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate,
the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If the
models we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses
upon changes in market interest rates or other market measures. If the models we use for estimating our expected credit losses
are inadequate, the allowance for credit losses may not be sufficient to support future charge-offs. If the models we use to
measure the fair value of financial instruments are inadequate, the fair value of such financial instruments may fluctuate
unexpectedly or may not accurately reflect what we could realize upon sale or settlement of such financial instruments. Any
such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and
results of operations.

The Value of Our Goodwill and Other Intangible Assets May Decline in the Future

As of December 31, 2020, we had $316.8 million of goodwill and other intangible assets. A significant decline in our expected
future cash flows, a significant adverse change in the business climate, slower growth rates or a significant and sustained
decline in the price of the Company’s common stock may necessitate taking charges in the future related to the impairment of
our goodwill and other intangible assets which could have a material adverse effect on our business, financial condition and
results of operations.

We Are Subject to Risk Arising from Failure or Circumvention of Our Controls and Procedures

Our internal controls, disclosure controls and procedures, and corporate governance policies and procedures are based in part on
certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any
failure or circumvention of our controls and procedures; failure to comply with regulations related to controls and procedures;
or failure to comply with our corporate governance policies and procedures could have a material adverse effect on our
reputation, business, financial condition and results of operations. Furthermore, notwithstanding the proliferation of technology
and technology-based risk and control systems, our businesses ultimately rely on people as our greatest resource, and, from
time-to-time, they make mistakes or engage in violations of applicable policies, laws, rules or procedures that are not always
caught immediately by our technological processes or by our controls and other procedures, which are intended to prevent and
detect such errors or violations. Human errors, malfeasance and other misconduct, including the intentional misuse of client
information in connection with insider trading or for other purposes, even if promptly discovered and remediated, can result in
reputational damage or legal risk and have a material adverse effect on our business, financial condition and results of
operations.

New Lines of Business, Products or Services and Technological Advancements May Subject Us to Additional Risks

From time to time, we implement new lines of business or offer new products and services within existing lines of business.
There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not
fully developed. In developing and marketing new lines of business and/or new products and services we invest significant time
and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services
may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with
regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new
line of business or a new product or service.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new
technology-driven products and services. Our future success depends, in part, upon our ability to address the needs of our

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customers by using technology to provide products and services that will satisfy customer demands, as well as to create
additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological
improvements. We may not be able to effectively implement new technology driven products and services or be successful in
marketing these products and services to our customers. In addition, our implementation of certain new technologies, such as
those related to artificial intelligence and algorithms, in our business processes may have unintended consequences due to their
limitations or our failure to use them effectively. In addition, cloud technologies are also critical to the operation of our systems,
and our reliance on cloud technologies is growing. Failure to successfully keep pace with technological change affecting the
financial services industry could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, any new line of business, new product or service and/or new technology could have a significant impact on the
effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and
implementation of new lines of business, new products or services and/or new technologies could have a material adverse effect
on our business, financial condition and results of operations.

Our Reputation and our Business Are Subject to Negative Publicity Risk

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. Negative public opinion could also result from adverse news or publicity that impairs the reputation of the
financial services industry generally. In addition, our reputation or prospects may be significantly damaged by adverse publicity
or negative information regarding us, whether or not true, that may be posted on social media, non-mainstream news services or
other parts of the internet, and this risk is magnified by the speed and pervasiveness with which information is disseminated
through those channels.

Our Business, Financial Condition and Results of Operations Are Subject to Risk from Changes in Customer Behavior

Individual, economic, political, industry-specific conditions and other factors outside of our control, such as fuel prices, energy
costs, real estate values or other factors that affect customer income levels, could alter anticipated customer behavior, including
borrowing, repayment, investment and deposit practices. Such a change in these practices could materially adversely affect our
ability to anticipate business needs and meet regulatory requirements. Further, difficult economic conditions may negatively
affect consumer confidence levels. A decrease in consumer confidence levels would likely aggravate the adverse effects of
these difficult market conditions on us, our customers and others in the financial institutions industry.

First Commonwealth Relies on Dividends from its Subsidiary Bank for Most of Its Revenue

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.

Acts of Cyber-Crime May Compromise Client and Company Information, Disrupt Access to Our Systems or Result in Loss of
Client or Company Assets.

Our business is dependent upon the availability of technology, the Internet and telecommunication systems to enable financial
transactions by clients, record and monitor transactions and transmit and receive data to and from clients and third parties.
Information security risks have increased significantly due to the use of online, telephone and mobile banking channels by
clients and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties. Our
technologies, systems, networks and our clients’ devices have been subject to, and are likely to continue to be the target of,
cyber-attacks, computer viruses, malicious code, phishing attacks or information security breaches that could result in the
unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our clients’ confidential, proprietary and other
information, the theft of client assets through fraudulent transactions or disruption of our or our clients’ or other third parties’
business operations.

Even the most well protected information, networks, systems and facilities remain potentially vulnerable to attempted security
breaches or disruptions because the techniques used in such attempts are constantly evolving and generally are not recognized
until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly,
we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and
thus it is virtually impossible for us to entirely mitigate this risk. While we maintain specific “cyber” insurance coverage, which
would apply in the event of various breach scenarios, the amount of coverage may not be adequate in any particular case.

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Furthermore, because cyber threat scenarios are inherently difficult to predict and can take many forms, some breaches may not
be covered under our cyber insurance coverage. A security breach or other significant disruption of our information systems or
those related to our customers, merchants or our third party vendors, including as a result of cyber attacks, could (i) disrupt the
proper functioning of our networks and systems and therefore our operations and/or those of certain of our customers; (ii) result
in the unauthorized access to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise
valuable information of ours or our customers; (iii) result in a violation of applicable privacy, data breach and other laws,
subjecting us to additional regulatory scrutiny and exposing us to civil litigation, governmental fines and possible financial
liability; (iv) require significant management attention and resources to remedy the damages that result; or (v) harm our
reputation or cause a decrease in the number of customers that choose to do business with us. The occurrence of any of the
foregoing could have a material adverse effect on our business, financial condition and results of operations.

Our Operations Rely On Certain External Vendors

We rely on certain vendors to provide products and services necessary to maintain the day-to-day operations of First
Commonwealth and FCB. In particular, we contracted with an external vendor for our core processing system used to maintain
customer and account records, reflect account transactions and activity, and support our customer relationship management
systems for substantially all of our deposit and loan customers. Accordingly, our operations are exposed to risk that these
vendors will not perform in accordance with the contracted arrangements under service level agreements. The failure of an
external vendor to perform in accordance with the contracted arrangements under service level agreements, because of changes
in the vendor’s organizational structure, financial condition, support for existing products and services or strategic focus or for
any other reason, could be disruptive to First Commonwealth’s operations and financial reporting, which could have a material
adverse effect on First Commonwealth’s business and, in turn, First Commonwealth’s financial condition and results of
operations.

In addition, our operations are exposed to risk that these vendors will not perform in accordance with the contracted
arrangements under service level agreements. Although we have selected these external vendors carefully, we do not control
their actions. The failure of an external vendor to perform in accordance with the contracted arrangements under service level
agreements, because of changes in the vendor’s organizational structure, financial condition, support for existing products and
services or strategic focus or for any other reason, could be disruptive to our operations, which could have a material adverse
effect on our business and, in turn, our financial condition and results of operations. Replacing these external vendors could also
entail significant delay and expense.

Financial Services Companies Depend on the Accuracy and Completeness of Information About Customers and Counterparties

In deciding whether to extend credit or enter into other transactions, we rely on information furnished by or on behalf of
customers and counterparties, including financial statements, credit reports and other financial information. We also rely on
representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and
completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other financial
information could have a material adverse impact on our business, financial condition and results of operations.

External and Market-Related Risks

We are Subject to Risk Arising from The Soundness of Other Financial Institutions and Counterparties

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have
exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial
services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of
these transactions expose us to credit risk in the event of a default by a counterparty or client. In addition, our credit risk may be
exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full
amount of the credit or derivative exposure due to us. Any such losses could have a material adverse effect on our business,
financial condition and results of operations.

Competition from Other Financial Institutions in Originating Loans, Attracting Deposits and Providing Various Financial
Services May Adversely Affect Our Profitability.

FCB faces 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 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.

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Compliance and Regulatory Risks

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. 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, policies
or supervisory guidance could result in enforcement and other legal actions by Federal or state authorities, including criminal
and civil penalties, the loss of FDIC insurance, the revocation of a banking charter, other sanctions by regulatory agencies, civil
money penalties and/or reputational damage. In this regard, government authorities, including the bank regulatory agencies, are
pursuing aggressive enforcement actions with respect to compliance and other legal matters involving financial activities, which
heightens the risks associated with actual and perceived compliance failures. See “Supervision and Regulation” included in
Item 1. Business for a more detailed description of the regulatory requirements applicable to First Commonwealth.

Risks Related to Acquisition Activity

Potential Acquisitions May Disrupt Our Business and Dilute Stockholder Value

We generally seek merger or acquisition partners that are culturally similar and have experienced management and possess
either significant market presence or have potential for improved profitability through financial management, economies of
scale or expanded services. Acquiring other banks, businesses, or branches involves various risks commonly associated with
acquisitions, including, among other things, (i) potential exposure to unknown or contingent liabilities of the target company;
(ii) exposure to potential asset quality issues of the target company; (iii) potential disruption to our business; (iv) potential
diversion of our management’s time and attention; (v) the possible loss of key employees and customers of the target company;
(vi) difficulty in estimating the value of the target company; and (vii) potential changes in banking or tax laws or regulations
that may affect the target company.

Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of our
tangible book value and net income per common share may occur in connection with any future transaction. Furthermore,
failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other
projected benefits from an acquisition could have a material adverse effect on our business, financial condition and results of
operations.

Acquisitions May Be Delayed, Impeded, or Prohibited Due to Regulatory Issues

Acquisitions by financial institutions, including us, are subject to approval by a variety of federal and state regulatory agencies
(collectively, “regulatory approvals”). The process for obtaining these required regulatory approvals has become substantially
more difficult since the global financial crisis, and our ability to engage in certain merger or acquisition transactions depends on
the bank regulators' views at the time as to our capital levels, quality of management, and overall condition, in addition to their
assessment of a variety of other factors, including our compliance with law. Regulatory approvals could be delayed, impeded,
restrictively conditioned or denied due to existing or new regulatory issues we have, or may have, with regulatory agencies,
including, without limitation, issues related to Bank Secrecy Act compliance, Community Reinvestment Act issues, fair lending
laws, fair housing laws, consumer protection laws, unfair, deceptive, or abusive acts or practices regulations and other laws and
regulations. We may fail to pursue, evaluate or complete strategic and competitively significant acquisition opportunities as a
result of our inability, or perceived or anticipated inability, to obtain regulatory approvals in a timely manner, under reasonable
conditions or at all. Difficulties associated with potential acquisitions that may result from these factors could have a material
adverse effect on our business, financial condition and results of operations.

Risks Associated with Our Common Stock

The Trading Volume in Our Common Stock Is Less Than That of Other Larger Financial Services Companies

Although First Commonwealth’s common stock is listed for trading on the NYSE, the trading volume in its common stock is
less than that of other, larger financial services companies. A public trading market having the desired characteristics of depth,
liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of First Commonwealth’s
common stock at any given time. This presence depends on the individual decisions of investors and general economic and
market conditions over which we have no control. Given the lower trading volume of First Commonwealth’s common stock,
significant sales of First Commonwealth’s common stock, or the expectation of these sales, could cause First Commonwealth’s
stock price to fall.

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First Commonwealth May Not Continue to Pay Dividends on Its Common Stock in The Future

Holders of First Commonwealth common stock are only entitled to receive such dividends as its board of directors may declare
out of funds legally available for such payments. Although First Commonwealth has historically declared cash dividends on its
common stock, it is not required to do so and may reduce or eliminate its common stock dividend in the future. This could
adversely affect the market price of First Commonwealth’s common stock. Also, First Commonwealth is a bank holding
company, and its ability to declare and pay dividends is dependent on certain federal regulatory considerations, including the
guidelines of the FRB regarding capital adequacy and dividends.

As more fully discussed in Part II, Item 8, Financial Statements and Supplementary Data-Note 24, Regulatory Restrictions and
Capital Adequacy, which is located elsewhere in this report, the ability of First Commonwealth to declare or pay dividends on
its common stock may also be subject to certain restrictions in the event that First Commonwealth elects to defer the payment of
interest on its junior subordinated debt securities.

An Investment in Our Common Stock Is Not an Insured Deposit

Our common stock is not a bank deposit and, therefore, is not insured against loss by the Federal Deposit Insurance Corporation
(FDIC), any other deposit insurance fund or by any other public or private entity. Investment in our common stock is inherently
risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market
forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you could lose
some or all of your investment.

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.

Risks Related to the COVID-19 Pandemic

Our Business, Financial Condition, Liquidity and Results of Operations Have Been, and Will Likely Continue to Be, Adversely
Affected by the COVID-19 Pandemic.

The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to
continue to adversely affect, our business, financial condition, liquidity and results of operations. The extent to which the
COVID-19 pandemic will continue to negatively affect our business, financial condition, liquidity and results of operations will
depend on future developments, which are highly uncertain and cannot be predicted and many of which are outside of our
control, including the scope and duration of the pandemic, the effectiveness of our Business Continuity and Health Emergency
Response plans, the direct and indirect impact of the pandemic on our employees, customers, clients, counterparties and service
providers, as well as other market participants, and actions taken, or that may yet be taken, or inaction, by governmental
authorities and other third parties in response to the pandemic.

The COVID-19 pandemic has contributed to:

◦

Increased unemployment and business disruption and decreased consumer and business confidence and consumer and
commercial activity generally, leading to an increased risk of delinquencies, defaults and foreclosures.

◦ Higher and more volatile credit loss expense and potential for increased charge-offs, particularly as customers may

need to draw on their committed credit lines to help finance their businesses and activities.

◦

Ratings downgrades, credit deterioration and defaults in many industries, particularly energy, retail/strip centers,
hotels/lodging, restaurants, entertainment and commercial real estate.

◦ A sudden and significant reduction in the valuation of the equity, fixed-income and commodity markets and the

significant increase in the volatility of those markets.

◦ A decrease in the rates and yields on U.S. Treasury securities, which may lead to decreased net interest income.

◦

Increased demands on capital and liquidity, leading us to cease repurchases of our common stock in order to preserve
capital and provide added liquidity.

21

◦ A reduction in the value of the assets that we manage or otherwise administer or service for others, affecting related

fee income and demand for our services.

◦ Heightened cybersecurity, information security and operational risks as a result of a remote workforce and impacts on

our service providers.

Any disruption to our ability to deliver financial products or services to, or interact with, our clients and customers could result
in losses or increased operational costs, regulatory fines, penalties and other sanctions, or harm our reputation.

General Risk Factors

We are Subject to Risk from Fluctuating Conditions in the Financial Markets and Economic and Political Conditions Generally

Our success depends, to a certain extent, upon local, national and global economic and political conditions, as well as
governmental monetary policies. Our financial performance generally, and in particular the ability of borrowers to pay interest
on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and
other products and services we offer, is highly dependent upon the business environment in the markets where we operate and
in the United States as a whole. A favorable business environment is generally characterized by, among other factors, economic
growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business
earnings. Unfavorable or uncertain economic and market conditions can be caused by a decline in economic growth both in the
U.S. and internationally; declines in business activity or investor or business confidence; limitations on the availability of or
increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; oil price volatility; natural
disasters; trade policies and tariffs; or a combination of these or other factors. While recent economic conditions in the United
States and worldwide have seen improving trends since the onset of the COVID-19 pandemic, there can be no assurance that
this improvement will continue. Economic pressure on consumers and uncertainty regarding continuing economic improvement
could result in changes in consumer and business spending, borrowing and savings habits. Such conditions could have a
material adverse effect on the credit quality of our loans and our business, financial condition and results of operations.

Changes in The Federal, State or Local Tax Laws May Negatively Impact Our Financial Performance and We Are Subject to
Examinations and Challenges by Tax Authorities

We are subject to federal and applicable state tax laws and regulations. Changes in these tax laws and regulations, some of
which may be retroactive to previous periods, could increase our effective tax rates and, as a result, could negatively affect our
current and future financial performance. Furthermore, tax laws and regulations are often complex and require interpretation. In
the normal course of business, we are routinely subject to examinations and challenges from federal and applicable state tax
authorities regarding the amount of taxes due in connection with investments we have made and the businesses in which we
have engaged. Recently, federal and state taxing authorities have become increasingly aggressive in challenging tax positions
taken by financial institutions. These tax positions may relate to tax compliance, sales and use, franchise, gross receipts, payroll,
property and income tax issues, including tax base, apportionment and tax credit planning. The challenges made by tax
authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income
among tax jurisdictions. If any such challenges are made and are not resolved in our favor, they could have a material adverse
effect on our business, financial condition and results of operations.

We May Need to Raise Additional Capital in The Future, and Such Capital May Not Be Available When Needed or at All

We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our
commitments and business needs, particularly if our asset quality or earnings were to deteriorate significantly. Our ability to
raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are
outside of our control, and our financial condition. Economic conditions and the loss of confidence in financial institutions may
increase our cost of funding and limit access to certain customary sources of capital, including inter-bank borrowings,
repurchase agreements and borrowings from the discount window of the Federal Reserve.

We cannot assure that such capital will be available on acceptable terms or at all. Any occurrence that may limit our access to
the capital markets, such as a decline in the confidence of debt purchasers, depositors of FCB or counterparties participating in
the capital markets, or a downgrade of First Commonwealth’s or FCB’s debt ratings, may adversely affect our capital costs and
our ability to raise capital and, in turn, our liquidity. Moreover, if we need to raise capital in the future, we may have to do so
when many other financial institutions are also seeking to raise capital and would have to compete with those institutions for
investors. An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our
business, financial condition and results of operations.

Our Stock Price Can Be Volatile

Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find
attractive. Our stock price can fluctuate significantly in response to a variety of factors including, among other things, (i) actual
or anticipated variations in quarterly results of operations; (ii) recommendations by securities analysts; (iii) operating and stock
price performance of other companies that investors deem comparable to us; (iv) news reports relating to trends, concerns and

22

other issues in the financial services industry; (v) perceptions in the marketplace regarding us and/or our competitors; (vi) new
technology used, or services offered, by competitors; (vii) the issuance by us of additional securities, including common stock
and securities that are convertible into or exchangeable for, or that represent the right to receive, common stock; (viii) sales of a
large block of shares of our common stock or similar securities in the market after an equity offering, or the perception that
such sales could occur; (ix) significant acquisitions or business combinations, strategic partnerships, joint ventures or capital
commitments by or involving us or our competitors; (x) failure to integrate acquisitions or realize anticipated benefits from
acquisitions; (xi) changes in government regulations; and (xii) geopolitical conditions such as acts or threats of terrorism or
military conflicts.

General market fluctuations, including real or anticipated changes in the strength of the economy; industry factors and general
economic and political conditions and events, such as economic slowdowns or recessions; and interest rate changes, oil price
volatility or credit loss trends could also cause our stock price to decrease regardless of operating results.

Changes in Accounting Standards Could Materially Impact Our Financial Statements

From time to time accounting standards setters change the financial accounting and reporting standards that govern the
preparation of our financial statements. These changes can be difficult to predict and can materially impact how we record and
report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard
retroactively, resulting in changes to previously reported financial results or a cumulative charge to retained earnings. See New
Accounting Pronouncements at the end of Item 7. Financial Statements and Supplementary Data elsewhere in this report for
further information regarding pending accounting standards updates.

We May Not Be Able to Attract and Retain Skilled People

Our success depends, in large part, on our ability to attract and retain key people. Competition for the best people in many
activities engaged in by us is intense and we may not be able to hire people or to retain them. We do not currently have
employment agreements or non-competition agreements with any of our senior officers. The unexpected loss of services of key
personnel could have a material adverse impact on our business, financial condition and results of operations because of their
customer relationships, skills, knowledge of our market, years of industry experience and the difficulty of promptly finding
qualified replacement personnel. In addition, the scope and content of U.S. banking regulators' policies on incentive
compensation, as well as changes to these policies, could adversely affect our ability to hire, retain and motivate our key
employees.

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 in Indiana, Pennsylvania, each of which is
in close proximity to our principal office.

First Commonwealth Bank has 120 community banking offices, of which 45 are leased and 75 are owned. We also lease three
mortgage loan production offices and four corporate 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 significant plans to lease, purchase or construct additional administrative
facilities.

ITEM 3.

Legal Proceedings

The information required by this Item is set forth in Part II, Item 8, Note 21, “Contingent Liabilities,” which is incorporated
herein by reference in response to this item.

ITEM 4.

Mine Safety Disclosures

Not applicable.

23

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, 2020 is set forth below:

Jane Grebenc, age 62, has served as Executive Vice President and Chief Revenue Officer of First Commonwealth Financial
Corporation and President of First Commonwealth Bank since May 31, 2013. Ms. Grebenc's financial services career includes
executive leadership roles at a variety of institutions, including Park View Federal Savings Bank, Key Bank, and National City
Bank. She was formerly the Executive Vice President in charge of the retail, marketing, IT and operations and the mortgage
segments at Park View Federal Savings Bank from 2009 until 2012, the Executive Vice President in charge of the Wealth
Segment at Key Bank from 2007 until 2009 and the Executive Vice President / Branch Network at National City Bank prior to
2007.

Brian Karrip, age 60, has served as Executive Vice President and Chief Credit Officer of First Commonwealth Bank since
September 2016. Prior to joining First Commonwealth, Mr. Karrip served as Executive Vice President, Specialized Lending
for FirstMerit Bank. Prior to joining FirstMerit Bank, Mr. Karrip served as Managing Director and Group Head of Loan
Syndications and Sales at KeyBanc Capital Markets. Mr. Karrip’s financial services career also includes 16 years with National
City Bank where he held a variety of roles in the commercial lending division and served as Regional President of Michigan
and Illinois.

Leonard V. Lombardi, age 61, 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.

Norman J. Montgomery, age 53, has served as the Executive Vice President of Business Integration of First Commonwealth
Bank since May 2011. He oversees First Commonwealth’s product development and assumed oversight of First
Commonwealth’s technology and operations functions in July 2012. He served as Senior Vice President/Business Integration of
First Commonwealth Bank from September 2007 until May 2011 and previously held positions in the technology, operations,
audit and marketing areas.

T. Michael Price, age 58, has served as President and Chief Executive Officer of First Commonwealth Financial Corporation
and Chief Executive Officer of First Commonwealth Bank since March 2012. Mr. Price served as President of First
Commonwealth Bank from November 2007 to May 2013. From January 1, 2012 to March 7, 2012, he served 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.

James R. Reske, age 57, joined First Commonwealth Financial Corporation as Executive Vice President, Chief Financial
Officer and Treasurer on April 28, 2014. Prior to joining First Commonwealth, Mr. Reske served as Executive Vice President,
Chief Financial Officer, and Treasurer at United Community Financial Corporation in Youngstown, Ohio from 2008 until April
2014. Mr. Reske's financial services career includes investment banking roles within the Financial Institutions Groups at
Keybanc Capital Markets, Inc. in Cleveland, Ohio and at Morgan Stanley & Company in New York. Mr. Reske also provided
expertise and counsel to financial institutions and other organizations on mergers and acquisitions and capital markets activities
as an attorney at Wachtell, Lipton, Rosen & Katz, as well as at Sullivan & Cromwell. Earlier in his career, Mr. Reske worked at
the Board of Governors of the Federal Reserve System in Washington, DC and at the Federal Reserve Bank of Boston.

Carrie L. Riggle, age 51, has served as Executive Vice President / Human Resources since March 1, 2013. Ms. Riggle has been
with First Commonwealth for more than 20 years. Over the course of her tenure, Ms. Riggle has been responsible for the daily
operations of the Human Resources function and was actively involved in the establishment and development of a centralized
corporate human resources function within the Company.

Matthew C. Tomb, age 44, 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.

24

PART II

ITEM 5.
Securities

y
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity

y,

q

q

g

First Commonwealth is listed on the NYSE under the symbol “FCF.” As of December 31, 2020, there were appro
5,705 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 durin
fiscal years.

g the last two

ximately

a

ff

Period
2020
First Quarter

Second Quarter
Third Quarter

Fourth Quarter

Period
2019
First Quarter
Second Quarter

Third Quarter
Fourth Quarter

High Sale

Low Sale

Cash Dividends
Per Share

$

14.62

$

9.98
8.75

10.94

8.20

7.07
7.16

7.82

High Sale

Low Sale

$

$

14.29
13.87

13.77
14.86

12.18
12.57

12.08
12.67

$

$

0.11

0.11
0.11

0.11

Cash Dividends
Per Share

0.10
0.10

0.10
0.10

Federal and state regulations contain restrictions on the abila
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 24, Regulatory Restrictions and Capita
addition, under the terms of the capital securities issued by First Commonwealth Capita
could not pay dividends on its common stock if First Commonwealth deferred payments on the junior subordinated debt
securities that provide the cash flow for the payments on the capital securities.

l Adequacy.” In
l Trust II and III, First Commonwealth

ity of First Commonwealth to pay dividends. For information

a

a

25

ff

The following five-year
performance graph compares the cumulative total shareholder return (assuming reinvestment of
dividends) on First Commonwealth’s common stock to the SNL U.S. Bank Index and the Russell 2000 Index. The stock
performance graph assumes $100 was invested on December 31, 2015, and the cumulative return is measured as of each
subsequent fiscal year end.

Index
First Commonwealth Financial Corporation

12/31/2015
100.00

12/31/2016
161.17

12/31/2017
166.66

12/31/2018
143.93

12/31/2019
177.98

12/31/2020
140.81

Russell 2000
SNL U.S. Bank Index

100.00
100.00

121.31
126.35

139.08
149.21

123.76
124.00

155.35
167.93

186.36
145.49

Period Ending

Unregistered Sales of Equity Securities and Use of Proceeds

q

y

g

The following tabl

ff

e details the amount of shares repurchased during

d

ff
the fourt

h quarter of 2020.

Month Ending:g
October 31, 2020
November 30, 2020

December 31, 2020

Total

Total Number of
Shares Purchased

Average Price
Paid per Share
(or Unit)

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Maximum Number of
Shares that May Yet Be
Purchased Under the Plans
or Programs

792,030 $
—

—
792,030 $

8.25
—

—
8.25

792,030
—

—
792,030

—
—

—

For additional information, please see Part III, Item 12, "Security ownership of Certain Beneficial Owners." 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 “Stock Ownership of Certain Beneficial Owners” and “Stock Ownership of
Directors and Management,” and is incorporated herein by reference.

ff

26

ITEM 6.

Selected Financial Data

ff

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

auditor’s report and should be read in conjunction with

Interest income
Interest expense

Net interest income

Provision for credit losses

Net interest income after provision for
credit losses

Net securities gains (losses)

Other income
Other expenses

ff
Income before incom

e taxes

Income tax provision

Net Income

Per Share Data—Basic

Net Income

Periods Ended December 31,

2020

2019

2018

2017

2016

(dollars in thousands, except share data)

$

$

$

301,209
32,938

268,271
56,718

211,553
70

94,406
215,826

90,203
16,756

73,447

0.75

$

$

$

325,264
55,402

269,862
14,533

255,329
22

85,463
209,965

130,849
25,516

105,333

1.07

$

$

$

292,257
40,035

252,222
12,531

239,691
8,102

80,535
195,556

132,772
25,274

107,498

1.09

$

$

$

250,550
21,770

228,780
5,087

223,693
5,040

75,291
200,298

103,726
48,561

55,165

0.58

$

$

$

217,614
18,579

199,035
18,480

180,555
617

63,982
159,925

85,229
25,639

59,590

0.67

Dividends declared
Average shares outstanding

$
0.44
97,499,586

$
0.40
98,317,787

$
0.35
99,036,163

$
0.32
95,220,056

$
0.28
88,851,573

Per Share Data—Diluted

Net Income

$

0.75

$

1.07

$

1.08

$

0.58

$

0.67

Average shares outstanding

97,758,965

98,588,164

99,223,513

95,331,037

88,851,573

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 a

verage assets ratio

t

$ 9,068,104
1,205,294

$ 8,308,773
1,256,176

$ 7,828,255
1,335,228

$ 7,308,539
1,183,291

$ 6,684,018
1,187,623

6,761,183
101,309

7,438,666
117,373

170,612
56,258

6,189,148
51,637

6,677,615
201,853

170,450
56,917

1,068,617

1,055,665

5,774,139
47,764

5,897,992
721,823

170,288
7,551

975,389

5,407,376
48,298

5,580,705
707,466

72,167
8,161

888,127

4,879,347
50,185

4,947,408
867,943

72,167
8,749

749,929

0.82 %

1.31 %

1.42 %

0.77 %

0.89 %

6.82
89.53

58.67
12.00

10.32
91.91

37.38

12.71

11.41
97.09

32.11

12.47

6.45
96.03

55.17

11.86

8.02
97.61

41.79

11.15

Results for 2020 reflect accounting for the allowance forff
results prior to 2020 reflect accounting under the incurred methodology.

credit losses under the current expected credit loss methodology, while

27

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, as of and for the years ended December 31, 2020, and 2019. 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 more thorough understanding of this discussion, you should
refer to the Consolidated Financial Statements, the notes thereto and other financial information presented in this Annual
Report. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations included in our
Annual Report on Form 10-K filed with the SEC on March 2, 2020 for a discussion and analysis of the factors that affected
periods prior to 2019.

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 FCB and insurance products through FCIA. At December
31, 2020, FCB operated 120 community banking offices throughout western and central Pennsylvania and northeastern, central
and southwestern Ohio, as well as loan production offices in Pittsburgh, Pennsylvania, and Cleveland, Columbus, Canton,
Lewis Center, Hudson and Westlake, Ohio.

Our consumer services include Internet, mobile and telephone banking, an automated teller machine network, personal
checking accounts, interest-earning checking accounts, savings accounts, health savings accounts, insured money market
accounts, debit cards, investment certificates, fixed and variable rate certificates of deposit, mortgage loans, secured and
unsecured installment loans, construction and real estate loans, safe deposit facilities, credit cards, 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 and 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 Pennsylvania and Ohio.

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, less frequently,
through sales of assets, such as loans, investments or properties. These revenue sources are offset by provisions for credit losses
on loans, operating expenses, income taxes and, less frequently, loss on sale or other-than-temporary impairments on
investment securities.

General economic conditions also affect our business by impacting our customers’ need for financing, thus affecting loan
growth, as well as 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 to be critical because it is
highly dependent on subjective or complex judgments, assumptions and estimates made by management.

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 expected losses 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

28

based on management’s assessment of expected losses. Management determines and reviews with the Board of Directors the
appropriateness of the allowance on a quarterly basis in accordance with the methodology described below.

•

•

•

Loans are segmented into groups with similar characteristics and risks and an allowance for credit losses is calculated
for each segment based on the estimate of credit losses.

The allowance for credit losses is calculated by pooling loans of similar credit risk characteristics and applying a
discounted cash flow methodology after incorporating probability of default and loss given default estimates.
Probability of default represents an estimate of the likelihood of default and loss given default measures the expected
loss upon default. Inputs impacting the expected losses includes a forecast of macroeconomic factors, using a weighted
forecast from a nationally recognized firm.

Loans that do not have the same risks and characteristics of the loan pools are individually reviewed. 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 are “nonperforming,”. This means it is expected 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 and accruing troubled debt restructurings.

•

For individually analyzed 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 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 nonperforming loans, estimated losses for each loan category based on historical loss experience by category,
forecasts of 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.

Results of Operations—2020 Compared to 2019

Net Income

Net income for 2020 was $73.4 million, or $0.75 per diluted share, as compared to net income of $105.3 million, or $1.07 per
diluted share in 2019. The decline in net income was the result of $42.2 million in provision for credit losses recognized in
order to provide for estimated losses related to the COVID-19 pandemic and expenses of $3.4 million and $2.7 million related
to the voluntary early retirement program and branch consolidation initiatives, respectively. Partially offsetting the higher level
of expenses was an increase in noninterest income of $9.0 million, due to gains on sale of mortgage loans of $18.8 million in
2020 compared to $7.8 million in 2019.

Our return on average equity was 6.8% and our return on average assets was 0.82% for 2020, compared to 10.3% and 1.31%,
respectively, for 2019.

Average diluted shares for the year 2020 were 1% less than the comparable period in 2019 primarily due to $20.9 million of
common stock buybacks completed during 2020.

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 pretax equivalent amounts based on the marginal corporate federal income tax rate of 21%. The
taxable equivalent adjustment to net interest income for 2020 was $1.5 million compared to $1.7 million in 2019. Net interest
income comprises a majority of our operating revenue (net interest income before provision expense plus noninterest income) at
74% and 76% for the years ended December 31, 2020 and 2019, respectively.

29

Net interest income, on a fully taxable equivalent basis, was $269.7 million for the year-ended December 31, 2020, a $1.9
million, or 1%, decrease compared to $271.6 million for the same period in 2019. The net interest margin, on a fully taxable
equivalent basis, decreased 43 basis points to 3.32% in 2020 from 3.75% in 2019. The net interest margin 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 impact of growth in interest-earning assets in 2020 was offset by the effect of the mix of the asset growth and lower interest
rates, resulting in a decrease in the net interest margin for the year ended December 31, 2020. Average earning assets for the
year ended December 31, 2020 increased $878.9 million, or 12%, compared to the year ended December 31, 2019. This
increase in the volume of interest-earning assets positively increased net interest income by $42.9 million in the year ended
December 31, 2020 compared to the same period in 2019, while changes in rates negatively impacted net interest income by
$44.8 million. Interest-sensitive assets totaling $2.6 billion will either reprice or mature over the next twelve months.

The taxable equivalent yield on interest-earning assets was 3.72% for the year ended December 31, 2020, a decrease of 79 basis
points from the 4.51% yield for the same period in 2019. This decrease is largely due to a decrease in the loan portfolio yield,
which declined by 80 basis points compared to the prior year. Contributing to this decrease was the decline in the yield on our
adjustable and variable rate commercial loan portfolios, which decreased by 95 basis points largely due to the Federal Reserve
decreasing short-term interest rates. During the first quarter of 2020, the Federal Reserve decreased the federal funds target rate
by 150 basis points in addition to the 75 basis point in rate decreases made during 2019.

The loan yield for the year ended December 31, 2020 was also impacted by $589.1 million in Paycheck Protection Program
("PPP") loans originated under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") which have a stated
loan rate of 1% and a yield of 3.2% for the year ended December 31 2020. The yield on PPP loans includes the recognition of
PPP loan deferred processing fees, net of deferred origination costs, of $8.4 million for the year ended December 31, 2020.
These amounts are recognized in interest income as a yield adjustment over the life of the loan with accelerated recognition
when a loan is forgiven or paid off. As of December 31, 2020, we expect to recognize additional PPP-related deferred
processing fees, net of origination costs, of approximately $10.4 million as an adjustment to yield over the remaining life of the
loans. At December 31, 2020, the balance of PPP loans outstanding totaled $478.9 million. PPP loans increased the average
balance of loans by $382.6 million during the year ended December 31, 2020, decreasing the loan portfolio yield by 6 basis
points and the net interest margin by 1 basis point.

The investment portfolio yield decreased 53 basis points in comparison to the prior year as a result of the decrease in short-term
interest rates. Investment portfolio purchases during the year ended December 31, 2020 have been primarily in obligations of
US government agencies, obligations of other government-sponsored enterprises and obligations of states and political
subdivisions with durations of approximately 4 to 11 years. Additionally, as a result of excess liquidity caused by significant
growth in deposits during 2020, the average balance of interest-bearing deposits with banks has increased from $15.8 million in
2019 to $179.2 million in 2020. The impact of the level and rate paid on interest-bearing deposits with banks decreased the
yield on interest-earnings assets by 8 basis points for the year ended December 31, 2020.

Decreases in the cost of interest-bearing liabilities partially offset the negative impact of lower yields on interest-earning assets.
The cost of interest-bearing liabilities was 0.58% for the year-ended December 31, 2020, compared to 1.03% for the same
period in 2019. Lower market interest rates resulted in the cost of interest-bearing deposits decreasing 36 basis points and short-
term borrowings decreasing 163 basis points in comparison to the same period in the prior year. Deposit growth due to the
retention of PPP loan proceeds and the deposit of Federal stimulus checks, as well as deposits acquired in the third quarter of
2019 acquisition of Santander branches, combined to contribute to a decline in average short-term borrowings of $248.9 million
for the year ended December 31, 2020 compared to the same period in 2019. Lower market interest rates and management's
efforts to reduce deposit costs resulted in the cost of interest-bearing deposits decreasing 42 basis points and in the cost of short-
term borrowings decreasing 163 basis points in comparison to the same period last year. The decline in short-term interest rates
impacted the cost of long-term debt, decreasing the cost by 41 basis points.

Comparing the year ended December 31, 2020 with the same period in 2019, changes in rates negatively impacted net interest
income by $44.8 million. The lower yield on interest-earning assets decreased net interest income by $64.3 million, while the
decrease in the cost of interest-bearing liabilities positively impacted net interest income by $19.5 million.

Changes in the volume of interest-earning assets and interest-bearing liabilities positively increased net interest income by
$42.9 million in the year ended December 31, 2020 compared to the same period in 2019. Higher levels of interest-earning
assets resulted in an increase of $39.9 million in interest income, and changes in the volume of interest-bearing liabilities
decreased interest expense by $3.0 million, primarily due to a decreases in short-term borrowings and time deposits.

Positively affecting net interest income was a $586.9 million increase in average net free funds at December 31, 2020 as
compared to December 31, 2019. Average net free funds are the excess of noninterest-bearing demand deposits, other
noninterest-bearing liabilities and shareholders’ equity over noninterest-earning assets. The largest component of the increase in
net free funds was a $551.9 million increase in average noninterest-bearing demand deposits primarily due to deposit growth

30

related to PPP loan proceeds as well as $86.6 million in deposits attributed to the Santander branch acquisition completed in the
third quarter of 2019. Average time deposits for the year ended December 31, 2020 decreased $137.4 million, or 16%,
compared to the comparable period in 2019, while the average rate paid on time deposits decreased 28 basis points. Over the
next twelve months, $419.1 million in certificates of deposits are scheduled

d to mature.

t

ff

The following tabl
fully taxable equivalent basis for the periods presented:

e reconciles interest income in the Consolidated Statements of Income to net interest income adjusted to a

For the Years Ended December 31,

2020

2019

2018

(dollars in thousands)

$

301,209

$

325,264

$

292,257

1,462

302,671
32,938

1,748

327,012
55,402

1,974

294,231
40,035

254,196

Interest income per Consolidated Statements of Income
Adjustment to fully

taxable equivalent basis

ff

Interest income adjusted
Interest expense

d

to fully taxable equivalent basis (non-GAAP)

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

$

269,733

$

271,610

$

31

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

Average Balance Sheets and Net Interest Analysis

2020

2019

2018

Average
Balance

Income /
Expense (a)

Yield
or
Rate

Average
Balance

Income /
Expense (a)

(dollars in thousands)

Yield
or
Rate

Average
Balance

Income /
Expense (a)

Yield
or
Rate

$

179,180

$

218

0.12 % $

15,778

$

403

2.55 % $

5,594

$

172

3.07 %

44,308

1,167,316

6,737,339

8,128,143

97,632

(76,705)

825,510

846,437

$ 8,974,580

1,333

24,749

276,371

302,671

3.01

2.12

4.10

3.72

65,345

1,180,698

5,987,398

7,249,219

93,953

(51,274)

738,154

780,833

$ 8,030,052

2,014

31,381

293,214

327,012

3.08

2.66

4.90

4.51

67,746

1,194,131

5,582,651

6,850,122

92,729

(52,609)

665,114

705,234

$ 7,555,356

2,084

33,123

258,852

294,231

3.08

2.77

4.64

4.30

$ 1,525,195

$

1,843

0.12 % $ 1,293,588

$

7,025

0.54 % $ 1,179,439

$

4,615

0.39 %

3,027,016

726,702

142,634

233,701

9,966

10,163

704

10,262

0.33

1.40

0.49

4.39

2,597,674

864,056

391,547

216,383

15,180

14,520

8,298

10,379

0.58

1.68

2.12

4.80

2,441,327

749,408

618,957

147,915

8,624

8,474

10,741

7,581

0.35

1.13

1.74

5.13

5,655,248

32,938

0.58

5,363,248

55,402

1.03

5,137,046

40,035

0.78

2,101,412

140,612

1,077,308

3,319,332

1,549,507

96,896

1,020,401

2,666,804

1,434,233

41,740

942,337

2,418,310

$ 8,974,580

$ 8,030,052

$ 7,555,356

$

269,733

3.32 %

$

271,610

3.75 %

$

254,196

3.71 %

Assets

Interest-earning assets:

Interest-bearing deposits with
banks

Tax-free investment securities

Taxable investment securities

Loans, net of unearned

income (b)(c)(e)

Total interest-earning assets

Noninterest-earning assets:

Cash

Allowance for credit losses

Other assets

Total noninterest-earning
assets

Total Assets

Liabilities and Shareholders’
Equity

Interest-bearing liabilities:

Interest-bearing demand
deposits (d)

Savings deposits (d)

Time deposits

Short-term borrowings

Long-term debt

Total interest-bearing
liabilities

Noninterest-bearing liabilities and
shareholders’ equity:

Noninterest-bearing demand
deposits (d)

Other liabilities

Shareholders’ equity

Total noninterest-bearing
funding sources

Total Liabilities and
Shareholders’ Equity

Net Interest Income and Net Yield
on Interest-Earning Assets

Income on interest-earning assets has been computed on a fully taxable equivalent
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

basis using the federal income tax statutory rate of 21%.

ff

which were made for regulatory purposes.
Includes held for sale loans.

(e)

32

The following table sets forth certain informatio
ff
of interest-earning assets and interest-bearing liabilities and changes in the rates for the periods indicated:

n regarding changes in net interest income attributable to changes in the volume

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

2020 Change from 2019

2019 Change from 2018

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)

(185) $
(681)

$

4,167
(648)

(4,352) $
(33)

$

231
(70)

$

313
(74)

Interest-earning assets:

Interest-bearing deposits with
banks
Tax-free investment securities

$

Taxable investment securities
Loans

Total interest income (b)

Interest-bearing liabilities:
Interest-bearing demand
deposits
Savings deposits
Time deposits

Short-term borrowings
Long-term debt

(6,632)
(16,843)

(24,341)

(5,182)
(5,214)

(4,357)
(7,594)

(117)

(356)
36,747

39,910

1,251
2,490

(2,308)
(5,277)

831

(6,276)
(53,590)

(64,251)

(6,433)
(7,704)

(2,049)
(2,317)

(948)

(1,742)
34,362

32,781

2,410
6,556

6,046
(2,443)

2,798

15,367
17,414

$

(372)
18,780

18,647

445
547

1,296
(3,957)

3,512

1,843
16,804

$

(82)
4

(1,370)
15,582

14,134

1,965
6,009

4,750
1,514

(714)

13,524
610

Total interest expense
Net interest income

(22,464)
(1,877) $

$

(3,013)
42,923

$

(19,451)
(44,800) $

(a) Changes in interest income or expense not arising solely as a result of volume or rate variances are allocated to rate variances.
(b) Changes in interest income have been computed on a fully taxable equivalent basis using the 21

% federal income tax statutory rate.

ff

ff

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

The provision for credit losses for loans for the year 2020 totaled $53.5 million, an increase of $38.9 million, or 267.9%,
compared to the year 2019. The level of provision expense for the year-ended December 31, 2020 is primarily a result of $17.2
million in net charge-offs and an increase in the allowance for credit losses resulting from the implementation of CECL. The
expected loss methodology under CECL uses an economic forecast whic

h incorporates the impact of the COVID-19 pandemic.

ff

Provision expense for the commercial, financial, agricultural and other category was impacted by net charge-offs of $6.0
million, offset by a decrease in outstanding balances, excluding PPP loans. Because PPP loans are fully guaranteed by
Business Administration ("SBA"), there is no allowance for credit losses recognized for these loans. Provision expense for the
commercial real estate category is a result of $4.6 million in net charge-offs and a $21.1 million increase in qualitative reserves
due to additional risks related to loans that may be impacted by COVID-19, such as hospitality and retail real estate loans. Net
charge-offs related to loans to individuals were $6.0 million for the year
ended December 31, 2020, including $3.2 million for
indirect auto loans and $1.3 million related to personal lines of credit. The provision expense for loans to individuals was also
impacted by growth in the portfolio of $116.4 million as well as increased qualitative reserves due to
additional risks related to
COVID-19.

d

ff

ff

the Small

33

The table below provides a breakout of the provision for credit losses

ff

by loan category for the years ended December 31:

2020

2019

Dollars

Percentage

Dollars

Percentage

Commercial, financial, agricultural and other

$

Time and demand

Commercial credit cards

Real estate construction

Residential real estate

Residential first liens

Residential junior liens/home equity

Commercial real estate

Multifamily

Nonowner occupied

Owner occupied

Loans to individuals

Automobile

Consumer credit cards

Consumer other

Provision for credit losses on loans

Provision for off-balance sheet credit exposure

Total provision for credit losses

$

$

1,479
1,515

(36)

4,820
3,615

847
2,768

27,019
4,593

20,588
1,838

16,539
13,236
973

2,330
53,472

3,246
56,718

(dollars in thousands)

3 % $
3

3,927

27 %

398
851

3,201

3
6

22

6,156

42

—

9
7

2
5

50
9

38
3

31
25
2

4

100 % $

$

14,533

—
14,533

100 %

credit loss calculation, and resulting provision expense, was
Prior to our January 1, 2020 adoption of CECL, the allowance forff
based on an incurred loss model. The level of provision expense for the year-ended December 31, 2019 is primarily a result of
$10.7 million in net charge-offs, growth in the loan portfolio and an increase in the qualitative reserves as a result of increasing
economic risks not captured in the quantitative model. Provision expense for the commercial, finff ancial, agricultural, and other
category was impacted by net charge-offs of $3.1 million and $103.4 million growth in the portfolio. The provision expense for
the commercial real estate category is primarily due to $1.8 million in net charge-offs and a $0.8 million increase in qualitative
reserves. Net charge-offs related to loans to individuals were $5.2 million forff
$2.6 million related to indirect auto loans and $1.9 million related to personal lines of credit. The provision expense for loans
to individuals was also impacted by growth in the portfolio of $108.6 million.

the year ended December 31, 2019, including

The allowance for credit losses was $101.3 million, or 1.50%, of total loans outstanding at December 31, 2020, compared to
$51.6 million, or 0.83%, at December 31, 2019. Nonperforming loans as a percentage of total loans increased to 0.80% at
December 31, 2020 from 0.52% at December 31, 2019. The allowance to nonperforming loan ratio was 187.4% as of December
31, 2020 and 160.3% at December 31, 2019. Net charge-offs were $17.2 million for the year-ended December 31, 2020
ff
compared to $10.7 million for the same period in 2019.

The 2020 provision is a result of management's estimate of credit losses over the contractual life of the loan portfolio. The
change in the allowance for credit is impacted by estimated expected losses in the portfolio determined by a discounted cash
flow analysis considering inputs such as contractual payment schedules, prepayment estimates, historical loss experience,
calculated probability of default and loss given default estimates and forecasts for certain
unemployment, gross domestic product, the housing price index as well as other macroeconomic variables.

macroeconomic variables, such as

ff

Upon adoption of CECL at January 1, 2020, the provision for credit losses on off-balanc
part of the provision for credit losses instead of a component of non-interest expense as it previously was recorded. The
provision for credit losses recorded for off-balance sheet credit exposures totaled $3.2

ff
million for 2020.

e sheet credit exposures are recorded as

ff

ff

Management believes that the allowance for credit losses is at a level deemed appropriate to absorb expected
the loan portfolio at December 31, 2020.

a

losses inherent in

34

A detailed analysis of our credit loss experience forff

the previous five years is shown below:

2020

2019

2018

2017

2016

(dollars in thousands)

Loans outstanding at end of year

$ 6,761,183

$ 6,189,148

$ 5,774,139

$ 5,407,376

$ 4,879,347

Average loans outstanding

Balance, beginning of year

Adoption of accounting standard - ASU 2016-13

Loans charged off:

Commercial, financial, agricultural and other

Real estate construction

Residential real estate

Commercial real estate

Loans to individuals

$ 6,737,339

$ 5,987,398

$ 5,582,651

$ 5,278,511

$ 4,818,759

$

51,637

13,393

6,318

—

1,040

4,939

6,953

$

47,764

$

48,298

$

50,185

$

50,812

—

3,393

—

1,042

2,008

5,831

—

5,294

—

1,313

3,930

4,576

—

6,634

—

1,287

340

4,248

—

19,603

—

1,189

570

4,943

Total loans charged off

19,250

12,274

15,113

12,509

26,305

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 charge-offs

Provision charged to expense

Balance, end of year

Ratios:

314

26

414

312

991

2,057

17,193

56,718

$

101,309

$

326

158

315

189

626

1,614

10,660

14,533

51,637

$

788

141

361

153

605

2,048

13,065

12,531

47,764

3,901

470

371

278

515

5,535

6,974

5,087

$

48,298

$

4,164

562

481

1,522

469

7,198

19,107

18,480

50,185

Net charge-offs as a percentage of average loans
outstanding

Allowance for credit losses as a percentage of
end-of-period loans outstanding

Allowance for credit losses as a percentage of
end-of-period loans outstanding, excluding PPP
loans

0.26 %

0.18 %

0.23 %

0.13 %

0.40 %

1.50 %

0.83 %

0.83 %

0.89 %

1.03 %

1.61 %

0.83 %

0.83 %

0.89 %

1.03 %

35

Noninterest Income

II

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

ff

Noninterest Income:
Trust income

Service charges on deposit accounts
Insurance and retail brokerage
commissions
ff
Income from bank owne
insurance
Card related interchange income
ff
Swap fa

ee income

d life

Other income
Subtotal

Net securities gains
Gain on sale of mortgage loans

Gain on sale of loans and other assets
Derivative mark to market

2020

2019

2018

$ Change

% Change

2020 compared to 2019

(dollars in thousands)

$

$

9,101
16,387

$

8,321
18,926

$

7,901
18,175

780
(2,539)

9 %

(13)

7,850

7,583

7,426

6,552

23,966
1,588

7,892
73,336

70
18,764

4,827
(2,521)

6,002

21,677
3,397

7,268
73,174

22
7,765

4,793
(269)

6,686

20,187
1,874

6,790
69,039

8,102
5,436

5,273
787

267

550

2,289
(1,809)

624
162

48
10,999

34
(2,252)

8,991

4

9

11
(53)

9
—

218
142

1
837

11 %

Total noninterest income

$

94,476

$

85,485

$

88,637

$

ff

Noninterest income, excluding net securities gains, gain on sale of loans and other assets and the derivatives mark to market,
remained relatively flat,
increasing $0.2 million in 2020. Card-related interchange income increased $2.3 million, due to growth
in customer accounts and transactions, including $1.4 million attributable to the Santander acquisition in September 2019. Trust
income increased $0.8 million, primarily due to customer growth. Service charges on deposit accounts decreased $2.5 million,
despite a $0.7 million increase attributable to the Santander acquisition in 2019. The lower level of service charges on deposit
accounts is a result of customers maintaining higher deposit balances due to CARES Act stimulus and lower consumer
spending during 2020. Swap fa
ff
commercial customers.

s in interest rate swaps entered into for our

d
d $1.8 million due to decline

ee income decrease

Total noninterest income increased $9.0 million, or 11%, in comparison to the year ended December 31, 2019. The most
significant change, other than the changes noted above, include an increase of $11.0 million in gain on sale of mortgage loans
as a result of growth in our mortgage lending area. The mark to market adjustment on interest rate swaps entered into for our
commercial customers resulted in a decrease of $2.3 million. This adjustment does not reflect a realized loss on the swaps, but
rather relates to a change in fair value due to movements in corporate bond spreads and swap rates as well as changes in
counterparty credit risk.

If the Company's total assets would equal or exceed $10 billion we would no longer qualify for exemption from the interchange
fee cap included in the Dodd-Frank Act. We estimate the application of the interchange fee cap wa
y $10.7 million in 2020.
interchange income by approximatel

ould have decreased

a

36

Noninterest Expense

EE p

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

lows:

2020

2019

2018

$ Change

% Change

2020 Compared to 2019

(dollars in thousands)

Noninterest Expense:

Salaries and employee benefits

$

118,961

$

112,237

$

105,115

$

Net occupancy
Furniture and equipment

Data processing
Advertising and promotion

Pennsylvania shares tax
Intangible amortization

Other professional fees and services

FDIC insurance
Other operating expenses

Subtotal

Loss on sale or write-down of assets

Litigation and operational losses
Merger and acquisition related

COVID-19 expense
Early retirement

Branch consolidation

Total noninterest expense

$

17,647
15,393

10,543
4,679

4,500
3,689

3,886
2,699

24,770

206,767
680

1,411
—

874
3,422

18,923
15,160

10,692
4,250

4,602
3,344

4,631
1,219

27,960

203,018
1,724

1,687
3,536

—
—

17,219
14,247

10,470
3,956

4,875
3,217

4,473
2,007

26,098

191,677
1,080

1,162
1,637

—
—

2,672
215,826

$

—
209,965

$

—
195,556

$

6,724

(1,276)
233

(149)
429

(102)
345

(745)
1,480

(3,190)

3,749
(1,044)

(276)
(3,536)

874
3,422

2,672
5,861

6 %

(7)
2

(1)
10

(2)
10

(16)
121

(11)

2
(61)

(16)
(100)

100
100

100

3 %

Noninterest expense, excluding the loss on sale or write-down of assets, litigation and operational losses, merger and
acquisition expense, COVID-19, early retirement and branch consolidation expenses, increased $3.7 million, or 2%, for the year
ended December 31, 2020 compared to 2019. Contributing to the 2020 increase is a $6.7 million increase in salaries and
employee benefits resulting from annual merit increases and a $3.1 million increase in hospitalization expense. The Santander
. Partially offsetting
acquisition, in September 2019, accounted for $1.9 million of the salaries and employee benefit increase
these increases in salaries and employee benefit expense was the deferral of $0.6 million in salary arr
nd benefit costs related to
the origination of approximately 4,900 PPP loans during 2020. FDIC insurance increased $1.5 million as a result of growth in
our deposits. Other operating expenses decreased $3.2 million, including $1.8 million less in meeting and travel expense and
$0.5 million less in meals and entertainment expense due to a decline in these activities as a result of COVID-19. Also reducing
the other operating expenses is a decrease in off-balance sheet commitment expense of $0.7 million. In 2020, as a result of the
adoption of CECL, off-balance commitment expense is now recorded as part of provision for credit losses instead of non-
interest expense, where it was previously recorded. Net occupancy expense decreased $1.3 million as a result of a decrease in
building maintenance and repair expenses.

ff

Total noninterest expense increased $5.9 million, or 3%, compared to the year ended December 31, 2019. Other than the
changes noted above, increasing noninterest expense is $3.4 million related to the voluntary early retirement program and $2.7
million related to the branch consolidation initiative. The early retirement program was offered to all eligible employees who
reached age 60 or above as of December 31, 2020. Approximately 72 employees elected to participate in the early retirement
program, resulting in recognition of $3.0 million in severance and $0.4 million in hospitalization expense. The branch
consolidation initiative included the combination of 28 of the Company's retail locations into nearby offices in December 2020
and the related expenses include write-downs of $1.4 million on owned properties and leasehold improvements and $0.8
million in lease terminations expense. Offsetting these increases is a $3.5 million decrease in merger-related expenses. Merger
expenses in 2019 were the result of the Santander branch acquisition. Also decreasing noninterest expense is a $1.0 million
decline in loss on sale or write-down of assets due to a $0.5 million write-down of an OREO property dt
g 2019 with no
d
similar activity in the current year. The year ended December 31, 2020 included $0.8 million in expenses incurred as part of
dealing with the COVID-19 pandemic, primarily related to personal protective items such as masks and sanitizer for our
employees and customers, cleaning and other items necessary for a safe wff
to dealing with COVID-19.

ork environment as well as professional fees related

urin

ff

37

Income Tax

The provision for income taxes of $16.8 million in 2020 reflects a decrease of $8.8 million compared to the provision for
income taxes in 2019, as a result of a $40.6 million decrease in the level of income before taxes.

The effective tax rate was 18.6% and 19.5% for tax expense in 2020 and 2019, respectively. We ordinarily generate an annual
effective
ff
owned life insurance, which are relatively consistent regardless of the level of pretax income.

tax rate that is less than the statutory rate due to benefits resulting from tax-exempt interest and income from bank

ff

Financial Condition

First Commonwealth’s total assets increased $759.3 million in 2020. Loans, including loans held for sale, increased $589.5
million, or 9%, while interest bearing bank deposits increased $237.1 million. Loan growth in 2020 was impacted by the
origination $589.1 million of PPP loans originated under the CARES Act. At December 31, 2020, outstanding PPP loans
totaled $478.9 million. The increase in interest-bearing bank deposits can be attributed to the elevated customer deposit
balances as a result of PPP loan proceeds and the deposit of Federal stimulus checks into customer deposit accounts.

During 2020, approximately $591.2 million in investment securities were sold, called or matured. Most of these securities were
higher yielding securities in comparison to the total portfolio yield and, as such, their replacement contributed to the decrease in
the yield earned on the portfolio. In total, $250.9 million in agency securities, $225.9 million in mortgage-backed securities,
$19.8 million in municipal securities and $0.2 million in other securities were purchased in 2020 to help replace runoff from the
portfolio while maintaining a reduced risk profile.

First Commonwealth’s total liabilities increased $746.4 million, or 10%, in 2020. Deposits increased $761.1 million, or 11%.
This increase is primarily attributed to customer retention of PPP loan proceeds in deposit accounts and Federal stimulus
checks. Short-term borrowings decreased $84.5 million, or 42%, largely due to the additional liquidity provided by the increase
in deposits.

Total shareholders' equity increased $13.0 million in 2020. Growth in shareholders' equity was due to net income of $73.4
million and an $11.7 million increase in accumulated other comprehensive income, partially offset by $43.0 million in
dividends declared, $20.9 million in stock repurchases and an $11.2 million charge related to the adoption of CECL.

Loan Portfolio

f

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

2020

2019

2018

2017

2016

Amount

%

Amount

%

Amount

%

Amount

%

Amount

%

(dollars in thousands)

Commercial, financial,
agricultural and other
Real estate construction

Residential real estate

Commercial real estate

Loans to individuals

$ 1,555,986

23 % $ 1,241,853

20 % $ 1,138,473

20 % $ 1,163,383

22 % $ 1,139,547

23 %

427,221

1,750,592

2,211,569

815,815

6

26

33

12

449,039

1,681,362

2,117,519

699,375

7

27

34

12

358,978

1,562,405

2,123,544

590,739

6

27

37

10

248,868

1,426,370

2,019,096

549,659

5

26

37

10

219,621

1,229,192

1,742,210

548,777

5

25

36

11

Total loans

$ 6,761,183

100 % $ 6,189,148

100 % $ 5,774,139

100 % $ 5,407,376

100 % $ 4,879,347

100 %

The loan portfolio totaled $6.8 billion as of December 31, 2020, reflecting growth of $572.0 million, or 9%, compared to
December 31, 2019. All categories experienced loan growth, except for real estate construction.

Commercial, financial, agricultural and other loans increased $314.1 million, or 25%, as a result of $478.9 million in PPP loans
for small businesses who meet the necessary eligibility requirements. These loans carry a fixed
rate of 1.00% and yielded 3.2%
in 2020 after considering origination fees and costs recognized over the life of the loan or accelerated recognition at payoff or
forgiveness. The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of loan. PPP loans
are forff
a term of two or five years, if not forgiven, and payments are deferred for the first six months of the loan. Although the
Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the
program, there could be risks and liabilities to the Company associated with participation in the program that cannot be
determined at this time.

ff

38

Residential real estate loans increased $69.2 million, or 4%, primarily due to originations of closed-end 1-4 family mortga
loans. Growth in the loans to individuald
Commercial real estate loans increased $94.1 million, or 4%, partially due to constructio
permanent loans as well as growth in loans secured by multifamily residential properties.

ge
s category of $116.4 million, or 17%, was the result of growth in indirect auto loans.
n real estate loans that converted to

d

ff

The majority of our loan portfolio is with borrowers located in Pennsylvania. The Company also has a portion of its loan
portfolio in Ohio as a result of four recent acquisitions in that state. As of December 31, 2020 and 2019, 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 at
December 31, 2020 were as folff

lows:

Within
One Year

One to
5 Years

After
5 Years

Total

Commercial, financial, agricultural and other
Real estate construction (a)
Commercial real estate

Other

Totals

Loans at fixed interest rates

Loans at variable interest rates

Totals

$

$

152,870

$

(dollars in thousands)
976,144

$

426,214

75,516
222,643
2,395
453,424

193,328
926,768
27,506
2,123,746

1,106,012

1,017,734
2,123,746

$

$

74,476
1,062,157
111,669
1,674,516

407,434

1,267,082
1,674,516

$

$

$

1,555,228

343,320
2,211,568
141,570
4,251,686

$

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

ff

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.

First Commonwealth has a legal lending limit of $146.2 million to any one borrower or closely related group of borrowers, but
has established lower thresholds for credit risk management.

Nonperforming Loans

p f

g

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
d
or deferral of principal or interest as a result of the deteriorating financial position of the borrower under terms not availabla e 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. Consumer loans are placed in nonaccrual
status at 150 days past due. Other types of loans are typically placed in nonaccrual status when there is evidence of a
cial condition or principal and interest is 90 days or more delinquent. Interest received on a
significantly weakened finan
nonaccrual loan is normally applie
d as a reduction to loan principal rather than interest income utilizing the cost recovery
a
methodology of revenue recognition.

ff

Nonperforming loans are closely monitored on an ongoing basis as part of our loan review and work-out process. The estimated
credit loss on these loans is evaluated by comparing the loan balance to the faiff
present value of projected future
ff
estimable.

r value of any underlying collateral and the
s are recognized when a loss is expected and the amount is reasonably

cash flows. Losse

ff

39

The following is a comparison of nonperforming assets and the effects on
December 31:

ff

interest due to nonaccrual loans for the period ended

p

Nonperforming Loans:
Loans on nonaccrual basis

g

2020

2019

2018

2017

2016

(dollars in thousands)

$

30,801

$

18,638

$

11,509

$

19,455

$

16,454

r

Troubled debt restructured
nonaccrual basis
Troubled debt restructured
accrual basis

r

r

loans on

loans on

Total nonperforming loans

Loans past due in excess of 90 days and
still accruing
Other real estate owned

$

$

$

14,740

8,512
54,066

1,523

1,215

7
6,03

7,542
32,217

2,073

2,228

$

$

$

11,761

8,757
32,027

1,582

3,935

11,222

11,563
42,240

1,854

2,765

11,569

13,790
41,813

2,131

6,805

$

$

$

$

$

$

$

$

$

Loans outstanding at end of period
Average loans outstanding

$ 6,761,183
$ 6,737,339

$ 6,189,148
$ 5,987,398

$ 5,774,139
$ 5,582,651

$ 5,407,376
$ 5,278,511

$ 4,879,347
$ 4,818,759

Nonperforming loans as a percentage of
total loans
Provision for credit losses on loans
Allowance forff

credit losses

Net charge-offs

Net charge-offs as a percentage of
average loans outstanding
Provision for credit losses on loans as a
percentage of net charge-offs
Allowance forff
percentage of end-of-period loans
outstanding (a)

credit losses as a

credit losses as a

Allowance forff
percentage of end-of-period loans
outstanding, excluding PPP loans (a)

credit losses as a

Allowance forff
percentage of nonperforming loans (a)
Gross income that would have been
recorded at original rates
Interest that was reflected in income

d

Net reduction to
nonaccrual

interest income due to

0.80 %

0.52 %

0.55 %

0.78 %

0.86 %

$
$

$

56,718
101,309

17,193

$
$

$

14,533
51,637

10,660

$
$

$

12,531
47,764

13,065

$
$

$

5,087
48,298

6,974

$
$

$

18,480
50,185

19,107

0.26 %

0.18 %

0.23 %

0.13 %

0.40 %

311.01

%

36.33 %
1

95.91 %

72.94 %

96.72 %

1.50 %

0.83 %

0.83 %

0.89 %

1.03 %

1.61

%

.83 %
0

0.83 %

0.89 %

1.03 %

187.43 %

160.28 %

149.14 %

114.34 %

120.02 %

$

$

3,733
297

3,436

$

$

1,860
262

1,598

$

$

1,428
256

1,172

$

$

2,079
783

1,296

$

$

1,296
533

763

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

Nonperforming loans increased $21.8 million to $54.1 million at December 31, 2020, compared to $32.2 million at December
31, 2019. Nonperforming loans as a percentage of total loans decreased to 0.8% from 0.5% at December 31, 2020 compared to
December 31, 2019.

Also included in nonperforming loans are TDRs, which 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. TDRs decreased $9.7 million during 2020. For additional information on TDR
“Loans and Allowance for Credit Losses.”

s please refer to Note 9

d

In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 national
emergency. These modifications typically provide for the deferra
l of both principal and interest for 90 days. The CARES Act,
along with a joint agency statement issued by banking regulators, provides that modifications meeting certain criteria made in
response to COVID-19 do not need to be accounted for as
approximately 6,800 deferrals to its customers with aggregate principal balances of $1.4 billion. Payment deferrals granted on

a TDR. As of December 31, 2020 the Company has granted

ff

ff

40

approximately 6,100 accounts or $1.2 billion in balances have expired as of December 31, 2020. It is possible that some of
these deferrals will be extended in order to provide suppu ort forff

certain COVID-19 impacted customers.

Net charge-offs were $17.2 million in 2020 compared to $10.7 million for the year 2019. The most significant credit losses
recognized during the year include $4.7 million in charge-offs recognized on two commercial real estate relationships and $5.3
million in charge-offs rff
individual category totaled $6.0 million for 2020, primarily due to
charge-offs of indirect auto loans. Additional detail on credit
risk is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Provision
for Credit Losses,” “Allowance for Credit Losses" and "Credit Risk.”

elated to three commercial, financial, agricultural and other borrowers. Net charge-offs in the loans to

d

Provision for credit losses on loans as a percentage of net charge-offs increased to 311.0% for the year ended December 31,
2020 from 136.3% for the year ended December 31, 2019.

Allowance for Credit Losses

f

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

2020

2019

2018

2017

2016

Allowance
Amount

%
(a)

Allowance
Amount

%
(a)

Allowance
Amount

%
(a)

Allowance
Amount

%
(a)

Allowance
Amount

%
(a)

(dollars in thousands)

$17,187

23 % $20,234

20 % $19,374

20 % $23,429

22 % $35,974

23 %

7,966
14,358

41,953
19,845

6
26

33
12

2,558
4,093

19,768
4,984

7
27

34
12

$101,309

$51,637

2,002
3,969

18,386
4,033

$47,764

6
27

37
10

1,349
2,759

17,357
3,404

$48,298

5
26

37
10

577
2,511

6,619
4,504

$50,185

5
25

36
11

1.50 %

0.83 %

0.83 %

0.89 %

1.03 %

1.61 %

0.83 %

0.83 %

0.89 %

1.03 %

Commercial, financial,
agricultural and other

Real estate construction

Residential real estate

Commercial real estate

Loans to individuals

Total

Allowance for credit losses as
percentage of end-of-period
loans outstanding

Allowance for credit losses as
a percentage of end-of-period
loans outstanding, excluding
PPP loans

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

On March 27, 2020, the CARES Act was signed into law, providing banking organizations with optional, temporary relief
from complying with CECL. The Company elected to defer its adoption of CECL until the fourth quarter 2020. At the end of
the deferral period, CECL was adopted effective January 1, 2020, therefore Decembe
impact of accounting for the allowance for credit losses under CECL.

r 31, 2020 results reflect

l years

a fulff

ff

ff

The allowance for credit losses increased $49.7 million from December 31, 2019 to Decembe
as a result of the Company's adoption of CECL, the allowance for credit losses was increased by $13.4 million. This represents
the difference between the incurred allowance as of December 31, 2019 and the CECL allowance as of January 1, 2020.

r 31, 2020. On January 1, 2020,

ff

The allowance for credit losses as a percentage of end-of-period loans outstanding was 1.50% at December 31, 2020. The
increase compared to December 31, 2019 is largely due to
accordance with CECL, which provides for expected losses over the life of a loan. Prior years allowance for credit losses was
calculated to provide for credit losses as they were incurred. The allowance forff
performing loans and specific reserves for nonperforming loans. Comparing December 31, 2020 to December 31, 2019, the
general reserve for performing loans is 0.80% of total performing loans for bot
h periods. Specific reserves increased from 7.5%
of nonperforming loans at December 31, 2019 to 9.1% of nonperforming loans at December 31, 2020. The allowance for credit
losses as a percentage of nonperforming loans was 187.4% and 160.3% at December 31, 2020 and 2019, respectively.

the impact of calculating the allowance at December 31, 2020 in

credit losses includes both a general reserve for

d

ff

The allowance for credit losses represents management’s estimate of expected losses in the loan portfolio at a specific point in
time. This estimate includes losses associated with specifically identified loans, as well as estimated 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
appropriateness of the allowance at least quarterly, and in doing so relies on various factors including, but not limited to,
assessment of historical loss experience, contractual payment schedules, prepayment estimates, calculated probability of default

ff

41

and loss given default estimates and forecasts of certain macr
oeconomic variables, such as unemployment, gross domestic
product, housing price index as well as other macroeconomic variables. 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 forff Credit Losses for Loans.”

ff

Investment Portfolio

f

Marketable securities that we hold in our investment portfolio, which are classified as “securities available for sale,” act as a
source of liquidity. However, we do not anticipate liquidating the investments prior to maturity.

Following is a detail schedule of the amortized cost of securities available forff

sale as of December 31:

Obligations of U.S. Government Agencies:

Mortgage-Backed Securities—Residential
Mortgage-Backed Securities—Commercial

Obligations of U.S. Government-Sponsored Enterprises:

Mortgage-Backed Securities—Residential

Other Government-Sponsored Enterprises
Obligations of States and Political Subdivisions

Corporate Securities

Total Securities Available for Sa

ff

le

2020

2019

2018

(dollars in thousands)

$

$

$

6,492
182,823

$

7,745
186,316

9,011
169,633

481,109

100,996
11,154

22,941
805,515

$

660,777

1,000
17,738

22,919
896,495

$

686,906

10,000
27,592

20,912
924,054

As of December 31, 2020, securities available for sale had a faiff
million and there were no gross unrealized losses.

r value of $831.2 million. Gross unrealized gains were $25.7

The following is

ff

a schedule of the contractual maturity distribution of securities available for sale at Decembe

ff

r 31, 2020.

Within 1 year

After 1 but within 5 years
After 5 but within 10 years

After 10 years

Total

U.S.
Government
Agencies and
Corporations

States and
Political
Subdivisions

Other
Securities

Total
Amortized
Cost (a)

Weighted
Average
Yield (b)

$

100,015

$

— $

4,999

$

(dollars in thousands)

6,888
133,905

530,612

3,362
7,792

—

15,986
1,956

—

$

771,420

$

11,154

$

22,941

$

105,014

26,236
143,653

530,612

805,515

0.22 %

3.25
1.94

2.24

1.96 %

ff
(a) Equities are excluded from thi
(b) Yields are calculated on a taxable equivalent basis.

s schedule because they have an indefinite maturity.

Mortgage-backed securities, which include mortgage-backed obligations of U.S. Government agencies and obligations of U.S.
Government-sponsored
enterprises, have contractual maturities ranging from less than one year to approximately 30 years and
have anticipated average lives to maturity ranging from less than one year to approximately

eight years.

a

r

ff

The availabla e for sale investment portfoli
2019. Available forff
investments. Liquidity provided from sales, calls and maturities wa
into investment securities and interest bearing deposits with banks.

t

sale investment purchases of $411.2 million were offset by the sale, call or maturity of $472.

t

3 million in

o amortized cost decreased $91.0 million, or 10%, at December 31, 2020 compared to

ff
s utilized to fund growt

h in the loan portfolio or reinvested

42

Following is a detail schedule of the amortized cost of securities held to maturity as of December 31:

Obligations of U.S. Government Agencies:

Mortgage-Backed Securities—Residential

Mortgage-Backed Securities—Commercial

Obligations of U.S. Government-Sponsored Enterprises:

Mortgage-Backed Securities—Residential

Mortgage-Backed Securities—Commercial
Obligations of States and Political Subdivisions
Debt Securities Issued by Foreign Governments

Total Securities Held to Maturity

2020

2019

2018

(dollars in thousands)

$

2,766

$

3,392

$

36,799

51,291

277,351

9,737
34,391

800
361,844

$

229,667

12,081
40,092

600
337,123

$

$

3,635

55,221

279,109

13,159
42,331

400
393,855

The following is

ff

a schedule of the contractual maturity distribution of securities held to maturity

t

at December 31, 2020.

Within 1 year

After 1 but within 5 years
After 5 but within 10 years

After 10 years

Total

U.S.
Government
Agencies and
Corporations

States and
Political
Subdivisions

Other
Securities

Total
Amortized
Cost

Weighted
Average
Yield

(dollars in thousands)

— $

2,500

$

— $

9,737
9,423

307,493

6,868
20,126

4,897

800
—

—

326,653

$

34,391

$

800

$

$

$

2,500

17,405
29,549

312,390

361,844

2.80 %

2.60
2.39

1.59

1.71 %

The held to maturity
maturity investment purchases of $85.7 million were offset by the sale, call or maturity of $118.9 million in investments.

investment portfolio decreased $24.7 million, or 7%, at December 31, 2020 compared to 2019. Held to

t

See Note 8 “Investment Securities and Note 17 “Fair Values of Assets and Liabilities” for additional information related to the
investment portfolio.

43

p
Deposits

Total deposits increased $761.1 million, or 11%, in 2020. Interest-bearing demand and savings deposits increased $404.2
million, noninterest-bearing demand deposits increased $629.7 million and time deposits decreased $272.9 million. The deposit
increase is a result of elevated customer deposit balances from PPP loan proceeds and the deposit of Federal stimulus checks
into our customers' deposit accounts. For additional information concerning our deposits, please refer to Note 13 “Interest-
Bearing Deposits.”

Time deposits of $100 thousand or more had remaining maturities as follow
ended December 31:

ff

s as of the end of each year in the three-year period

2020

2019

2018

Amount

%

Amount

%

Amount

%

3 months or less
Over 3 months through 6 months

Over 6 months through 12 months
Over 12 months

$

79,135
59,193

52,447
40,675

(dollars in thousands)

34 % $
26

23
17

51,625
88,352

133,893
103,759

14 % $
23

35
28

51,619
59,201

133,285
140,429

13 %
15

35
37

Total

$ 231,450

100 % $

377,629

100 % $ 384,534

100 %

g
Short-Term Borrowings and Long-Term Debt

g

Short-term borrowings decreased $84.5 million, or 42%, from $201.9
December 31, 2020. Long-term debt decreased $0.9 million, from $234.2 million at December 31, 2019 to $233.3 million at
December 31, 2020. For additional information concerning our short-term borrowings, subordinated debentures and other
long-term debt, please refer to Note 14 “Short-term Borrowings,” Note 15 “Subordinated Debentures” and Note 16 “Other
Long-term Debt” of the Consolidated Financial Statements.

million at December 31, 2019 to $117.4 million at

ff

ff
Contractual Obligations and Off-Balance Sheet Arrangements

g

g

SS

The table below sets forth our contractual obligations to make future payments as of December 31, 2020. 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

(dollars in thousands)

After 5
Years

Total

FHLB advances

Subordinated debentures
Operating leases

Total contractual obligations

16

15
11

$

$

50,685

$

1,451

$

1,568

$

2,554

$

56,258

—
4,765

—
9,186

—
8,573

170,612
38,325

170,612
60,849

55,450

$

10,637

$

10,141

$

211,491

$

287,719

t
The table above
Bearing Deposits” of the Consolidated Financial Statements.

excludes our cash obligations upon maturity of c

a

ertificates of deposit, which is set fort

ff

h in Note 13 “Interest-

In addition, see Note 10 “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, 2020. 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 uponu
these commitments and often these commitments
expire without being drawn upon. As of December 31, 2020, a reserve for expected credit losses of $7.4 million was recorded
for unused commitments and letters of credit.

Liquidity

to our ability to meet the cash flow requirements of depositors and borrowers as well as our operating cash

Liquidity refersff
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 orde

r to manage this risk,

ff

44

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 Asset/Liability Committee (“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, which monitors it by using such measures as a 30-day liquidity stress analysis, 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 increased $761.1 million, or 11%,
during 2020, and comprised 93% of total liabilities at December 31, 2020, as compared to 92% at December 31, 2019. The
increase in deposits in 2020 is a result of elevated customer deposit balances from PPP loan proceeds and the deposit of Federal
stimulus checks into our customer's deposit accounts. Proceeds from the sale, maturity and redemption of investment securities
totaled $591.2 million during 2020 and provided liquidity to fund loans, pay down short-term borrowings, purchase investment
securities and fund depositor withdrawals.

We also have available unused wholesale sources of liquidity, including overnight federal funds and repurchase agreements,
advances from the 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,
2020 our borrowing capacity at the Federal Reserve related to this program was $840.0 million and there were no amounts
outstanding. Additionally, as of December 31, 2020, our maximum borrowing capacity at the Federal Home Loan Bank of
Pittsburgh was $1.5 billion and as of that date amounts used against this capacity included $0.1 billion in outstanding
borrowings.

We participate in the Certificate of Deposit Account Registry Services (“CDARS”) program as part of an ALCO strategy to
increase and diversify funding sources. As of December 31, 2020, our maximum borrowing capacity under this program was
$0.9 billion and as of that date there was $4.5 million 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, 2020, our outstanding certificates of deposits from this program have an average weighted rate of 0.51% and an
average original term of 263 days.

We also have available unused federal funds lines with five correspondent banks. These lines have an aggregate commitment
of $180.0 million and there were no amounts outstanding as of December 31, 2020. In addition, we have available unused repo
lines with three correspondent banks. These lines have an aggregate commitment of $509.4 million with no outstanding balance
as of December 31, 2020.

The liquidity needs of First Commonwealth on an unconsolidated basis (the "Parent Company") consist primarily of operating
expenses, debt service payments and dividend payments to our stockholders, which totaled $50.9 million for the year ended
December 31, 2020, as well as any cash necessary to repurchase our shares, which totaled $20.9 million for the year ended
December 31, 2020. The primary source of liquidity for the Parent Company is dividends from subsidiaries. The Parent
Company had $72.2 million in junior subordinated debentures and cash and interest-bearing deposits of $34.4 million at
December 31, 2020. At the end of 2020, the Parent Company had a $20.0 million short-term, unsecured revolving line of credit
with another financial institution. As of December 31, 2020, there were no amounts outstanding under this line. The Parent
Company has the ability to enhance its liquidity position by raising capital or incurring debt.

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”

45

within asset and liability products as certain borrowers have the option to prepay their loans when rates fall, while
depositors can redeem or withdraw their deposits early when rates rise.

ff

certain

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
a
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 events. 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. Under simulation analysis, 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 volume equals run-off. 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.

ff

analysis compares the difference between the amount of interest-earning assets and interest-bearing

The following gap
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 0.51 and 0.80 at December 31, 2020 and 2019, respectively. A ratio of less than one indicates a higher
level of repricing liabilities over repricing assets over the next twelve months. The level of First Commonwealth's ratio is
largely driven by the modeling of interest-bearing non-maturity deposits, which are included in the analysis as repricing within
one year.

Following is the gap analysis as of December 31:

2020

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

$ 596,292

$ 495,759

$ 942,174

$2,034,225

$3,424,936

$1,270,694

109,706

256,572

962,570
163,340

4,555,744
189,645

82,052

—

577,811
120,458

—
50,105

158,357

—

1,100,531
135,285

—
209

350,115

256,572

2,640,912
419,083

4,555,744
239,959

4,908,729
$(3,946,159)

170,563
$ 407,248

135,494
$ 965,037

5,214,786
$(2,573,874)

0.20
43.52 %

3.39
4.49 %

8.12
10.64 %

0.51
28.38 %

495,013

150,976

—

—

3,919,949
141,577

—
1,673

143,250
$3,776,699
27.36
41.65 %

1,421,670
2,153

—
104,166

106,319
$1,315,351

13.37
14.51 %

Loans

Investments

Other interest-earning assets
Total interest-sensitive
assets (ISA)
Certificates of deposit

Other deposits
Borrowings

Total interest-sensitive
liabilities (ISL)
Gap

ISA/ISL
Gap/Total assets

46

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

2019

$2,818,183
103,225

19,510

2,940,918

121,302
4,151,518

274,213

$ 313,651
79,866

$ 494,467
162,225

$3,626,301
345,316

$2,052,952
633,178

$ 475,962
235,437

—

—

19,510

—

—

393,517

161,488
—

193

656,692

303,245
—

385

3,991,127

586,035
4,151,518

274,791

2,686,130

711,399

246,512
—

103,082

2,822
—

53,064

4,547,033

161,681

303,630

5,012,344

349,594

55,886

$(1,606,115)

0.65

19.33 %

$ 231,836
2.43

$ 353,062
2.16

$(1,021,217)

0.80

$2,336,536
7.68

$ 655,513
12.73

2.79 %

4.25 %

12.29 %

28.12 %

7.89 %

Loans
Investments

Other interest-earning assets

Total interest-sensitive
assets (ISA)
Certificates of deposit
Other deposits

Borrowings

Total interest-sensitive
liabilities (ISL)
Gap

ISA/ISL

Gap/Total assets

nalysis has limitations due to the static nature of the

Gap aa
economic and interest rate scenarios. A lower level of rate sensitive assets to rate sensitive liabilities repricing in one year could
indicate reduced net interest income in a rising interest rate scenario, and conversely, increased net interest income in a
declining interest rate scenario. However, the gap analysis incorporates only the level of interest-earning assets and interest-
bearing liabilities and not the sensitivity each has to changes in interest rates. The impact of the sensitivity to changes in
interest rates is provided in the table below the gap analysis.

model that holds volumes and consumer behaviors constant in all

t

ff

The following tabl
interest rates over a 12-month time framff
changes in balance sheet categories.

e presents an analysis of the potential sensitivity of our annual net interest income to gradual changes in

e as compared with net interest income if rates remained unchanged and there are no

December 31, 2020 ($)

December 31, 2020 (%)
December 31, 2019 ($)

December 31, 2019 (%)

Net interest income change (12 months)

-200

-100

+100

+200

(dollars in thousands)

$

$

(4,911)

(1.79)%

(12,540)

(4.52)%

$

$

$

$

(2,621)

(0.95)%
(5,880)
(2.12)%

$

$

3,340

1.22 %
4,279
1.54 %

6,229

2.27 %
8,032
2.90 %

ff

The following tabl
as compared to if rates remained unchanged, assuming there are no changes in balance sheet categories.

e represents the potential sensitivity of our annual net interest income to immediate changes in interest rates

Net interest income change (12 months)

-200

-100

+100

+200

December 31, 2020 ($)

December 31, 2020 (%)
December 31, 2019 ($)
December 31, 2019 (%)

$

$

(13,807)

(5.03)%

(41,661)
(15.02)%

$

$

(dollars in thousands)
(9,175)

$

9,921

(3.34)%

3.61 %

(21,604)

$

12,259

$

$

18,408

6.70 %

22,291

(7.79)%

4.42 %

8.04 %

The analysis and model used to quantify the sensitivity of our net interest income becomes less meaningful in a decreasing 200
basis point scenario given the current interest rate environment. Results of the 100 and 200 basis point interest rate decline
scenario are affected by the fact that many of our interest-bearing liabilities are at rates below 1%, with an assumed floor
of
ff
zero in the model. For the years 2020 and 2019, the cost of our interest-bearing liabilities averaged 0.58% and 1.03%,
respectively, and the yield on our average interest-earning assets, on a full
4.51%, respectively.

y taxable equivalent basis, averaged 3.72% and

ff

47

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

Credit Risk

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

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

First Commonwealth also maintains a reserve for unfunded loan commitments and letters of credit based upon credit risk and
probability of funding. The reserve totaled $7.4 million at December 31, 2020 and is classified in “Other liabilities” on the
Consolidated Statements of Financial Condition.

Nonperforming loans include nonaccrual loans and loans classified as troubled debt restructurings. Nonaccrual loans represent
loans on which interest accruals have been discontinued. Troubled debt restructured loans are those loans whose terms have
been renegotiated to provide a reduction or deferral of principal or interest as a result of the deteriorating financial position of
the borrower, who could not obtain comparable terms from alternate financing sources. In 2020, 41 loans totaling $14.9 million
were identified as troubled debt restructurings, requiring $0.6 million additional specific reserves.

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. Generally, loans 90 days or more past due are placed on nonaccrual status, except for consumer loans which are
placed on nonaccrual status at 150 days past due.

Nonperforming loans are closely monitored on an ongoing basis as part of our loan review and work-out process. The 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 $101.3 million at December 31, 2020 or 1.50% of loans outstanding, compared to $51.6
million or 0.83% of loans outstanding at December 31, 2019. Credit measures as of December 31, 2020 compared to December
31, 2019 reflect an increase in the level of criticized loans of $202.2 million from $100.6 million at December 31, 2019 to
$302.8 million at December 31, 2020. Commercial real estate loans accounted for $183.3 million of this increase, primarily
due to the impact of COVID-19 on hospitality and retail real estate loans. Classified assets increased $24.1 million from $52.0
million at December 31, 2019 to $76.2 million at December 31, 2020. Delinquency on accruing loans decreased $1.3 million, or
10%, and the level of nonperforming loans increased $21.8 million for the same period.

The allowance for credit losses as a percentage of nonperforming loans was 187.4% at December 31, 2020 and 160.3% as of
December 31, 2019. The allowance for credit losses includes specific allocations of $4.9 million related to nonperforming
loans covering 9% of the total nonperforming balance at December 31, 2020 and specific allocations of $2.4 million covering
8% of the total nonperforming balance at December 31, 2019. 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 expected losses in the loan
portfolio at December 31, 2020.

48

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

For the Period Ended December 31, 2020

As of December 31, 2020

% of
Total Net
Charge-
offs

Net
Charge-offs
as a %
of Average
Loans

Net
Charge-offs

Nonperforming
Loans

% of Total
Nonperforming
Loans

Nonperforming
Loans as a % of
Total Loans

$

6,004
(26)

626
4,627

5,962

34.92 %
(0.15)

3.64
26.91

34.68

(dollars in thousands)

0.09 % $

—

0.01
0.07

0.09

6,235
54

10,939
36,407

418

11.54 %
0.10

20.24
67.35

0.77

0.09 %
—

0.16
0.54

0.01

$

17,193

100.00 %

0.26 % $

54,053

100.00 %

0.80 %

Commercial, financial,
agricultural and other
Real estate construction

Residential real estate
Commercial real estate

Loans to individuals

Total loans, net of
unearned income

As the above table illustrates, commercial real estate and residential real estate loans were the most significant portions of the
nonperforming loans as of December 31, 2020. See discussions related to the provision for credit losses and loans for more
information.

New Accounting Pronouncements

(Topic 848), which
In March 2020, FASB released Accounting Standards Update (“ASU”) 2020-04 - Reference Rate Reformff
, reference rate
provides optional guidance to ease the accounting burden in accounting for, or recognizing the effects from
reformff
on financial reporting. The new standard is a result of the potential discontinuance of the London Interbank Offered Rate
("LIBOR") as an available benchmark rate. The standard is elective and provides optional expedients and exceptions for
applying GAAP to contracts, hedging relationships, or other transactions that reference
LIBOR, or another reference rate
expected to be discontinued. The amendments in the update are effective for all entities between March 12, 2020 and December
31, 2022. The Company has established a cross-functional working group to manage the Company’s transition from LIBOR.
Products that utilize LIBOR have been identified and have incorporated enhanced language to accommodate the transition to
alternative reference rates. The Company continues to evaluate the impact of adopting the new standard and at this time does
not expect it to have a material impact on its consolidated financial statements.

ff

ff

In December 2019, FASB released ASU 2019-12 - Income Taxes (Topic 740), which simplifies the accounting for income
taxes by removing multiple exceptions to the general principles in Topic 740. The standard is effective for public business
entities for fisca
m periods within those fiscal years, beginning after December 15, 2020. The Company
ff
does not expect the adoption of this standard to have a material impact on the Company’s consolidated financia

l years, and for interi

l statements.

ff

ff

ITEM 7A.

Q
Quantitative and Qualitative Disclosures About Market Risk

Q

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

49

ITEM 8.

Financial Statements and Supplementary Data

pp

y

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

Securities held to maturity, at amortized cost, (Fair value $369,851 at December 31, 2020 and $338,718
at December 31, 2019)

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

Bank owned life insurance

Other assets

Total assets

Liabilities

Deposits (all domestic):

Noninterest-bearing

Interest-bearing

Total deposits

Short-term borrowings

Subordinated debentures

Other long-term debt

Capital lease obligation

Total long-term debt

Other liabilities

Total liabilities

Shareholders’ Equity

December 31,

2020

2019

(dollars in thousands, except
share data)

$

100,009

$

102,346

256,572

831,223

361,844

12,227

33,436

19,510

902,292

337,123

16,761

15,989

6,761,183

6,189,148

(101,309)

(51,637)

6,659,874

6,137,511

125,517

1,215

303,328

13,492

225,952

143,415

137,268

2,228

303,328

16,366

220,723

97,328

$

9,068,104

$

8,308,773

$

2,319,958

$

1,690,247

5,118,708

7,438,666

4,987,368

6,677,615

117,373

170,612

56,258

6,385

233,255

210,193

201,853

170,450

56,917

6,815

234,182

139,458

7,999,487

7,253,108

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

—

—

Common stock, $1 par value per share, 200,000,000 shares authorized; 113,914,902 shares issued as of
December 31, 2020 and 2019; and 96,130,751 and 98,311,840 shares outstanding at December 31, 2020
and 2019, respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive (loss) income, net

Treasury stock (17,784,151 and 15,603,062 shares at December 31, 2020 and 2019, respectively)

Total shareholders’ equity

Total liabilities and shareholders’ equity

113,915

494,683

596,614

17,233

113,915

493,737

577,348

5,579

(153,828)

(134,914)

1,068,617

1,055,665

$

9,068,104

$

8,308,773

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

50

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

2020

Years Ended December 31,
2019
(dollars in thousands, except share data)

2018

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
Interest on capital lease obligation
Total interest expense

Net Interest Income

Provision for credit losses

Net Interest Income after Provision for Credi
Noninterest Income

ff

t Losses

Net securities gains
Trust income
Service charges on deposit accounts
Insurance and retail brokerage commissions
Income from bank owned life insurance
Gain on sale of mortgage loans
Gain on sale of other loans and assets
Card related interchange income
Derivative mark to market
Swap fee income
Other income

Total noninterest income

Noninterest Expense

Salaries and employee benefits
Net occupancy
Furniture and equipment
Data processing
Advertising and promotion
Pennsylvania shares tax
Intangible amortization
Other professional fees and services
FDIC insurance
Loss on sale or write-down of assets
Litigation and operational losses
Merger and acquisition related
COVID-19 expense
Early retirement
Branch consolidation
Other operating expenses

Total noninterest expense

Income before income taxes

Income tax provision

Net Income
Average Shares Outstanding
Average Shares Outstanding Assuming Dilution
Per Share Data: Basic Earnings Per Share

Diluted Earnings Per Share

Cash Dividends Declared per Common Share

$

275,189

$

291,889

$

257,316

24,063
1,053
686
218
301,209

21,972
704
8,580
1,419
263
32,938
268,271
56,718
211,553

70
9,101
16,387
7,850
6,552
18,764
4,827
23,966
(2,521)
1,588
7,892
94,476

29,773
1,591
1,608
403
325,264

36,725
8,298
9,084
1,016
279
55,402
269,862
14,533
255,329

22
8,321
18,926
7,583
6,002
7,765
4,793
21,677
(269)
3,397
7,268
85,485

118,961
17,647
15,393
10,543
4,679
4,500
3,689
3,886
2,699
680
1,411
—
874
3,422
2,672
24,770
215,826
90,203
16,756
73,447
97,499,586
97,758,965
0.75
0.75
0.44

$

$
$
$

112,237
18,923
15,160
10,692
4,250
4,602
3,344
4,631
1,219
1,724
1,687
3,536
—
—
—
27,960
209,965
130,849
25,516
105,333
98,317,787
98,588,164
1.07
1.07
0.40

$

$
$
$

$

$
$
$

31,264
1,646
1,859
172
292,257

21,713
10,741
6,987
300
294
40,035
252,222
12,531
239,691

8,102
7,901
18,175
7,426
6,686
5,436
5,273
20,187
787
1,874
6,790
88,637

105,115
17,219
14,247
10,470
3,956
4,875
3,217
4,473
2,007
1,080
1,162
1,637
—
—
—
26,098
195,556
132,772
25,274
107,498
99,036,163
99,223,513
1.09
1.08
0.35

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

51

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Net Income

Other comprehensive income (loss), before tax expense (benefit):

Years Ended December 31,

2020

2019

2018

(dollars in thousands)

$

73,447

$

105,333

$

107,498

Unrealized holding gains on securities arising during the period

19,981

20,625

2,783

Less: reclassification adjust
income
Unrealized (losses) gains on derivatives:

d ment for gains on securities included in net

Unrealized holding (losses) gains on derivatives arising during the
period
Reclassification adjustment for
net income

losses on derivatives included in

d

Unrealized (losses) gains for postretirement obligations:

Prior service cost
Net (loss) gain

(70)

(22)

(8,102)

(4,467)

—

(537)

(155)

935

—

—

(121)

326

10

—

144

Total other comprehensive income (loss), before income tax
expense (benefit)

Income tax expense (benefit) related to items of other comprehensive
income (loss)

Comprehensive Income

14,752

21,417

(4,839)

3,098
85,101

$

4,497
122,253

$

(1,015)
103,674

$

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

52

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Shares
Outstanding

Common
Stock

Additional
Paid-in-
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss),
net

Treasury
Stock

Total
Shareholders’
Equity

(dollars in thousands, except per share data)

Balance at December 31, 2019

98,311,840

$

113,915

$

493,737

$

577,348

$

5,579

$

(134,914) $

1,055,665

Net income

Total other comprehensive income

Cash dividends declared ($0.44 per share)

Adoption of accounting standard - ASU
2016-13

Treasury stock acquired

Treasury stock reissued

Restricted stock

(2,430,842)

158,453

91,300

—

459

487

73,447

(42,982)

(11,199)

—

—

11,654

73,447

11,654

(42,982)

(11,199)

(20,905)

1,817

1,120

(20,905)

1,358

633

Balance at December 31, 2020

96,130,751

$

113,915

$

494,683

$

596,614

$

17,233

$

(153,828) $

1,068,617

Shares
Outstanding

Common
Stock

Additional
Paid-in-
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss),
net

Treasury
Stock

Total
Shareholders’
Equity

(dollars in thousands, except per share data)

Balance at December 31, 2018

98,518,668

$

113,915

$

492,273

$

511,409

$

(11,341) $

(130,867) $

Net income

Total other comprehensive income

Cash dividends declared ($0.40 per share)

Treasury stock acquired

Treasury stock reissued

Restricted stock

(486,849)

205,021

75,000

105,333

(39,394)

16,920

—

1,014

450

—

—

(6,259)

1,730

482

975,389

105,333

16,920

(39,394)

(6,259)

2,744

932

Balance at December 31, 2019

98,311,840

$

113,915

$

493,737

$

577,348

$

5,579

$

(134,914) $

1,055,665

Shares
Outstanding

Common
Stock

Additional
Paid-in-
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss),
net

Treasury
Stock

Total
Shareholders’
Equity

(dollars in thousands, except per share data)

Balance at December 31, 2017

97,456,478

$

113,915

$

470,123

$

437,416

$

(6,173) $

(127,154) $

888,127

Adoption of accounting standard - ASU
2018-02

Balance at January 1, 2018

Net income

Total other comprehensive loss

Cash dividends declared ($0.35 per share)

97,456,478

$

113,915

$

470,123

$

438,760

$

(7,517) $

(127,154) $

1,344

(1,344)

107,498

(34,849)

(3,824)

Treasury stock acquired

Treasury srr

tock reissued

Restricted stock

(1,920,544)

2,908,234

74,500

—

21,579

571

—

—

(26,189)

22,447

29

—

888,127

107,498

(3,824)

(34,849)

(26,189)

44,026

600

Balance at December 31, 2018

98,518,668

$

113,915

$

492,273

$

511,409

$

(11,341) $

(130,867) $

975,389

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

53

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,

2020

2019

2018

(dollars in thousands)

$

73,447

$

105,333

$

107,498

Operating Activities

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

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

Income from increase in cash surrender value of bank owned life insurance
Mortgage loans originated for sale
Proceeds from sale of mortgage loans

Increase in interest receivable
Increase (decrease) in interest payable

(Increase) decrease in income taxes payable

Distribution from unconsolidated subsidiary
Other—net

Net cash provided by operating activities

Investing Activities

Transactions with securities held to maturity:

Proceeds from sales
Proceeds from maturities and redemptions

Purchases

Transactions with securities available for sale:

Proceeds from sales

Proceeds from maturities and redemptions

Purchases

Purchases of FHLB stock

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

Acquisition, net of cash acquired
Net increase in loans

Purchases of premises and equipment

Net cash (used in) provided by investing activities

Financing Activities

Net increase (decrease) in federal funds purchased
Net (decrease) increase in other short-term borrowings

Net increase in deposits
Repayments of other long-term debt
Proceeds from issuance of long-term debt

Repayments of capital lease obligations

Dividends paid
Proceeds from reissuance of treasury srr

tock

Purchase of treasury stock

Net cash provided by (used in) financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at January 1
Cash and cash equivalents at December 31

$

56,718
(8,217)

11,653

(18,807)
6,183

(6,288)
(410,715)

408,877

(10,735)
(879)

(887)

—
5,349

105,699

—

118,905
(85,679)

—

472,282

(411,178)
(22,231)
26,766
1,444
41,141

5,531

—
(622,504)

(7,615)
(483,138)

—
(84,480)

761,398

(659)
—

(430)

(42,982)
222
(20,905)

612,164
234,725
121,856
356,581

$

14,533
2,292

10,370

(10,671)
3,892

(5,998)
(251,428)

251,968

423
(256)

1,484

—
(14,310)

107,632

948

54,632
(200)

—

189,194

(138,670)
(36,850)

52,215

557
37,534

6,822

332,468
(358,328)

(17,380)
122,942

(11,000)
(508,970)

308,783

(634)
50,000

(402)

(39,394)
211

(6,259)

(207,665)
22,909
98,947
121,856

$

12,531
3,473

8,046

(21,540)
3,083

(5,808)
(165,898)

177,287

(2,561)
383

(1,926)

9,000
11,695

135,263

—

47,614
(20,650)

15,939

140,707

(331,969)
(52,107)

51,488

2,140
40,783

4,477

705
(237,276)

(9,599)
(347,748)

11,000
3,357

176,558

(23,598)
98,026

(373)

(34,849)
208

(26,189)

204,140
(8,345)
107,292
98,947

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

54

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 consolidated financial statements of First Commonwealth Financial Corporation and its subsidiaries (“First
Commonwealth”) contained in this report. First Commonwealth's subsidiaries include, First Commonwealth Bank ("FCB" or
the "Bank"), First Commonwealth Insurance Agency, Inc. ("FCIA"), FRAMAL and First Commonwealth Financial Advisors,
Inc ("FCFA").

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 a commercial bank and an insurance agency, 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 26 counties in central and western Pennsylvania as well as throughout Ohio. First Commonwealth has determined
that 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.

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 prior period amounts have been
reclassified to conform to the current period's presentation.

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 Income, as
appropriate, in the period earned.

Investment 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 securities
not classified as either held-to-maturity securities or trading securities are classified as securities available for sale and are
reported at 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 held to maturity and 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 evaluate for expected
credit losses. When evaluating available-for-sale securities, management first considers whether we intend to sell the security,
or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If there is
intent to sell, the security's amortized cost is written down to fair value through income. Otherwise, available-for-sale securities
whose market values have fallen below their book value are evaluated at the issuer-specific level to determine if the decline in
value is a result of credit losses. 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. Any loss not determined to be a credit loss is recorded as a reduction to shareholders equity, through other
comprehensive income. Held-to-maturity securities are evaluated for impairment on a quarterly basis using historical
probability of default and loss given default information specific to the investment category. If this evaluation determines that
credit losses exist an allowance for credit loss is recorded and included in earnings as a component of credit loss expense.

55

Mortgage Loans Held for Sale

Certain residential mortgage loans are originated for sale in the secondary mortgage loan market with the majority sold with
servicing rights released. These loans are classified as loans held for sale and are carried at the estimated market value on an
aggregate basis. Market value is determined on the basis of rates obtained in the respective secondary market for the type of
loan held for sale. Loans are generally sold at a premium or discount from the carrying amount of the loan. Such premium or
discount is recognized at the date of sale. Gain or loss on the sale of loans is recorded in non-interest income at the time
consideration is received and all other criteria for sales treatment have been met.

Loans

Loans are carried at the principal amount outstanding. Interest is accrued as earned. Loans held for sale are carried at the lower
of cost or fair market 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 is
reversed. 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 the loan 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. Troubled debt restructured loans are considered to be
nonperforming loans.

A loan is considered to be nonperforming when, based on current information and events, it is expected that First
Commonwealth will be unable to collect principal or interest that is due in accordance with contractual terms of the loan.
Nonperforming 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 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
collectability 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.

Acquired loans are recorded at estimated fair value on the date of acquisition with no carryover of the related allowance for
credit losses. The fair value of acquired loans is determined by estimating the principal and interest cash flows expected to be
collected on the loans and discounting those cash flows at a market rate of interest. The estimated fair value considers factors
such as loan term, internal risk rating, delinquency status, prepayment rates, estimated value of the underlying collateral and the
current interest rate environment.

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.

56

Other Real Estate Owned

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

Allowance for Credit Losses for Loans

On January 1, 2020, First Commonwealth adopted ASU 2016-13 Financial Instruments - Credit Losses ("Topic 326"), which
replaces the incurred loss methodology for determining our allowance for credit losses and related provision for credit losses
with an expected loss methodology that is referred to as the Current Expected Credit Loss ("CECL") model. The measurement
of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including
our loans.

We adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost and off-
balance sheet credit exposures and recognized a cumulative effect adjustment reducing retained earnings by $11.2 million, net
of tax. First Commonwealth made the accounting policy election to exclude accrued interest from the allowance for credit loss
calculation because these balances are written off or reversed when a loan is placed in non-accrual status.

In connection with our adoption of ASU 2016-13, we made changes to our loan portfolio segments, as compared to loan
segments under the incurred model, to align with the methodology applied in determining the allowance under CECL. Refer to
Note 9, " Loans and Allowance for Credit Losses" for further discussion of these portfolio segments.

Under CECL, the allowance for credit losses is calculated by pooling loans of similar credit risk characteristics and applying a
discounted cash flow methodology after incorporating probability of default and loss given default estimates. Probability of
default represents an estimate of the likelihood of default and loss given default measures the expected loss upon default. Inputs
impacting the expected losses includes a forecast of macroeconomic factors, using a weighted forecast from a nationally
recognized firm. Our model incorporates a one-year forecast of macroeconomic factors, after which the factors revert back to
the historical mean over a one-year period.

Results for reporting periods beginning after January 1, 2020 are presented under ASU 2016-13 while prior period amounts
continue to be reported in accordance with previously applicable GAAP.

Prior to January 1, 2020, the allowance for credit losses was estimated based on managements assessment of probable estimated
losses. In addition to loan category, the major loan classifications used in the allowance for credit losses calculation include
pass, other assets especially mentioned (“OAEM”), substandard and doubtful. Additional information related to these credit
quality categories is provided in Note 9, "Loans and Allowance for Credit Losses." Under this incurred methodology, the
allowance calculation uses net historical charge-off trends to estimate probable unconfirmed losses for each loan category.
A multiplier known as the emergence factor is applied to the historical loss rates for non-criticized loans. The emergence factor
is calculated by loan category and represents the average time period from when a loss is incurred until the bank experiences a
charge-off against the loan. 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.

Under the incurred model, loans acquired with evidence of credit deterioration were evaluated and not considered to be
significant. The premium or discount estimated through the loan fair value calculation is recognized in interest income on a
level yield or straight-line basis over the remaining contractual life of the loans. Additional credit deterioration on acquired
loans, in excess of the original credit discount embedded in the fair value determination on the date of acquisition, was
recognized in the allowance for credit losses through the provision for loan losses.

As part of both CECL and the incurred methodology, all nonperforming credits, which includes nonaccrual loans and all
troubled debt restructurings ("TDRs"), in excess of $250 thousand are individually evaluated on a quarterly basis. A specific
reserve is established for individually evaluated loans in an amount equal to the total amount of estimated losses for the loans
that are reviewed. Based on this reserve as a percentage of reviewed loan balances, a reserve is also established for the
nonperforming loan balances that are not individually reviewed.

An additional component of the allowance is determined by management based on a qualitative analysis of certain factors
related to portfolio risks that are not incorporated in the calculated model. Factors considered by management include lending
practices, ability and experience of the credit staff, the overall lending environment and external factors such as the regulatory
environment and competition. 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 inherently imprecise. Management must make estimates using assumptions and information that is often
subjective and changes rapidly.

57

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. Off-balance sheet credit exposure includes commitments to extend credit,
standby letters of credit and commercial letters of credit. The Company’s methodology for assessing the appropriateness of the
allowance for off-balance sheet credit exposure consists of analysis of historical usage trends. 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 the expected loss percentage calculated for comparable loan
categories as part of the allowance for credit losses for loans. This amount is adjusted quarterly and any change to the allowance
is reported as part of provision expense on the Consolidated Statements of Income. The allowance for off-balance sheet credit
exposures is reflected in "Other Liabilities" in the Consolidated Statements of Finance Condition.

Bank Owned Life Insurance

First Commonwealth and the banks that First Commonwealth has acquired have 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 as non-interest income in the Consolidated
Statements of Income and cash receipts and disbursements are included in "Operating Activities" in the Consolidated
Statements of Cash Flows. 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 $4.6 million and $4.2 million as of December 31,
2020 and 2019, respectively, and is reflected in "Other Liabilities" on the Consolidated Statements of Financial Condition.

Premises, Equipment and Lease Commitments

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.

Software costs are amortized on a straight-line basis over a period not to exceed 7 years.

A right-of-use asset and related lease liability is recognized on the Consolidated Statements of Financial Condition for operating
leases First Commonwealth has entered to lease certain office facilities. These amounts are reported as components of premises
and equipment and other liabilities. Short-term operating leases, which are leases with an original term of 12 months or less and
do not have a purchase option that is likely to be exercised, are not recognized as part of the right-of-use asset or lease liability.
First Commonwealth has no material leasing arrangements for which it is the lessor of property or equipment.

Business Combinations

Business combinations are accounted for by using the acquisition method of accounting. Under the acquisition method,
identifiable assets acquired and liabilities assumed at the acquisition date are measured at their fair values as of that date, and
are recognized separately from goodwill. The difference between the purchase price and the fair value of the net assets acquired
is recorded as goodwill. Results of operations of the acquired entities are included in the consolidated statement of income from
the date of acquisition. Acquisition costs are expensed when incurred.

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. First Commonwealth reviews goodwill annually and again at any quarter-end if a material event occurs during the
quarter that may affect goodwill. When circumstances indicate that it is more likely than not that fair value is less than carrying
value, a triggering event has occurred and a quantitative impairment test is performed. Goodwill is evaluated for potential
impairment by determining if our fair value has fallen below carrying value.

Other Intangible Assets

Other intangible assets consist of core deposits and customer lists obtained through acquisitions. Core deposit intangibles are
amortized over their estimated lives using the present value of the benefit of the core deposits and straight-line methods of
amortization. Customer list intangibles are amortized over the expected lives using expected cash flows based on retention of
the customer base. These intangibles are evaluated for impairment on an annual basis and when events or changes in
circumstances indicate that the carrying amount may not be recoverable.

58

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, changes in the funded status of defined benefit
postretirement plans and changes in the fair value of cash flow hedges. Comprehensive income is reported in the accompanying
Consolidated Statements of Comprehensive Income, 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.

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 Consolidated 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. For derivatives designated as cash flow hedges, changes in fair value of the effective
portion of the cash flow hedges are reported in other comprehensive income ("OCI"). When the cash flows associated with the
hedged item are realized, the gain or loss included in OCI is recognized in the Consolidated Statement of Income.

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 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, 2020, First Commonwealth has interest rate derivative
positions that are designated as hedging instruments and others that are not designated as hedging instruments. See Note 7,
“Derivatives,” for a description of these instruments.

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.

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

59

the entity. For all periods presented, the dilutive effect on average shares outstanding is the result of unvested restricted stock
grants.

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 into 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 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, loans held for sale, interest rate derivatives
that include interest rate swaps, risk participation agreements and foreign currency contracts, certain other real estate
owned and certain nonperforming 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 nonmarketable equity investments, certain other real estate owned and
certain nonperforming loans.

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 17 “Fair Values of
Assets and Liabilities” for additional information.

Revenue from Contracts with Customers

First Commonwealth records revenue from contracts with customers in accordance with ASC Topic 606, “Revenue from
Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify
the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance
obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation.

A significant component of the Company's revenue, net interest earned on financial assets and liabilities, is excluded from the
scope of Topic 606. First Commonwealth generally fully satisfies its performance obligations on its contracts with customers as
services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity.
Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, the Company has
made no significant judgments in applying the revenue guidance prescribed in Topic 606 that affect the determination of the
amount and timing of revenue from contracts with customers.

Note 2—Acquisition

Santander Branch Acquisition

On September 6, 2019, the Company's banking subsidiary, First Commonwealth Bank, completed its acquisition of 14 full
service branches from Santander Bank N.A. ("Santander") receiving $329.5 million in cash. This acquisition further expands
the Company's market into State College, Lock Haven, Williamsport and Lewisburg, Pennsylvania and included the purchase
of $100.0 million in loans and $471.4 million in deposits.

60

The table below summarizes the final purchase price allocation and th
received in connection with the Santander acquisition (dollars in thousands):

ff

e net assets acquired (at fair value) and consideration

Consideration Received
Cash received

Fair Value of Assets Acquired

Cash and cash equivalents
Loans

Premises and other equipment

Core deposit intangible
Other assets

Total assets acquired

Fair Value of Liabilities Assumed

Deposits

Other liabilities
Total liabiliti

a

es assumed

Total Fair Value of Identifiable Ne

ff

t Assets

Goodwill

2,935
99,956

3,637

5,615
770

112,913

471,386

186
471,572

$

329,533

(358,659)

$

29,126

The goodwill of $29.1 million arising from the acquisition represents the value of synergies and economies of scale expected
from combining the operations of the Company with the branches acquired from Santander.
d over a 15-year period for income tax purposes.
expected to be deducte

The goodwill for this transaction is

d

ff

r value. The Company determined fair values in accordance with the guidance provided in FASB ASC

The Company determined that this acquisition constitutes a business combination as defined in FASB ASC Topic 805,
“Business Combinations.” Accordingly, as of the date of the acquisition, the Company recorded the assets acquired and
liabilities assumed at faiff
Topic 820, “Fair Value Measurements and Disclosures.” Acquired loans were recorded at faiff
related allowance for loan losses. At the date of acquisition, none of the loans were accounted for unde
Topic 310-30, “Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality.” The faiff
r value of acquired
loans and certificate of deposits is established by discounting the expected future cash flows with a market discount rate for like
r value of acquired loans is the result of $101.2 million in loans acquired
maturities and risk instruments. The $100.0 million faiff
from Santander and the recognition of a net combined yield and credit mark adjstment of $1.2
million. The $471.4 million fair
value of acquired deposits is the result of $471.0 million in deposits acquired and the recognition of a yield mark adjustment of
$0.4 million on the certificate of deposits. A $5.6 million core deposit intangible was recognized forff

r value with no carryover of the
r the guidance of ASC

core deposits acquired.

d

d

ff

Costs related to the acquisition totaled $3.7 million in 2019. These amounts were expensed as incurred and are recorded as a
merger and acquisition related expense in the Consolidated Statements of Income.

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

61

Unrealized gains (losses) on
securities:

Unrealized holding gains on
securities arising during the
period

Reclassification adjustment
for gains on securities
included in net income

Total unrealized gains
(losses) on securities

Unrealized gains (losses) on
derivatives:

Unrealized holding (losses)
gains on derivatives arising
during the period

Reclassification adjustment
for losses on derivatives
included in net income

Total unrealized (losses)
gains on derivatives

Unrealized (losses) gains for
postretirement obligations:

Note 3—Supplemental Comprehensive Income Disclosures

ff

e identifies the related tax effects allocated to each component of other comprehensive income in the

The following tabl
Consolidated Statements of Comprehensive Income as of December 31. Reclassification adjustments related to securities
available for sale are included in the “Net securities gains” line in the Consolidated Statements of Income and reclassification
adjustment
s related to losses on derivatives are included in the "Other operating expenses" line in the Consolidated Statements
d
of Income.

2020

2019

2018

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)

$ 19,981

$ (4,196) $ 15,785

$ 20,625

$ (4,331) $ 16,294

$

2,783

$

(585) $

2,198

(70)

15

(55)

(22)

5

(17)

(8,102)

1,701

(6,401)

19,911

(4,181)

15,730

20,603

(4,326)

16,277

(5,319)

1,116

(4,203)

(4,467)

938

(3,529)

935

(196)

739

326

(68)

258

—

—

—

(4,467)

938

(3,529)

—

935

—

(196)

—

739

—

(96)

10

336

—

144

(3)

(71)

—

(30)

7

265

—

114

Prior service cost

Net (loss) gain

(537)

(155)

113

32

(424)

(123)

—

(121)

—

25

Total unrealized
(losses) gains for
postretirement
obligations

Total other
comprehensive
income (loss)

(692)

145

(547)

(121)

25

(96)

144

(30)

114

$ 14,752

$ (3,098) $ 11,654

$ 21,417

$ (4,497) $ 16,920

$ (4,839) $

1,015

$ (3,824)

62

The following table details the change in components of OCI for th

ff

e year-ended December 31:

2020

Securities Available
for Sale

Derivatives

Post-Retirement
Obligation

Accumulated Other
Comprehensive
Income

(dollars in thousands)

Balance at December 31

$

4,580

$

634

$

365

$

Other comprehensive income before reclassification
adjustment

Amounts reclassified from accumulated other
comprehensive income (loss)

15,785

(3,529)

(55)

—

Prior service cost

Net gain

Net other comprehensive income during the period

Balance at December 31

$

15,730

20,310

$

(3,529)

(2,895) $

(424)

(123)

(547)

(182) $

5,579

12,256

(55)

(424)

(123)

11,654

17,233

2019

Securities Available
for Sale

Derivatives

Post-Retirement
Obligation

Accumulated Other
Comprehensive
Income

(dollars in thousands)

Balance at January 1

$

(11,697) $

(105) $

461

$

(11,341)

Other comprehensive income before reclassification
adjustment
Amounts reclassified from accumulated other
comprehensive income (loss)

16,294

(17)

Net gain

Net other comprehensive income during the period

Balance at December 31

$

16,277

4,580

$

17,033

(17)

(96)

16,920

5,579

(96)

(96)

365

$

739

—

739

634

$

2018

Securities Available
for Sale

Derivatives

Post-Retirement
Obligation

Accumulated Other
Comprehensive
Income

(dollars in thousands)

Balance at January 1

$

(6,166) $

Cumulative effect of adoption of ASU 2018-02

Balance at January 1

Other comprehensive income before reclassification
adjustment
Amounts reclassified from accumulated other
comprehensive income (loss)

Net gain

(1,328)

(7,494)

2,198

(6,401)

Net other comprehensive income during the period

(4,203)

(306) $

(64)

(370)

258

7

265

Balance at December 31

$

(11,697) $

(105) $

299

$

48

347

114

114

461

$

(6,173)

(1,344)

(7,517)

2,456

6,394)
(

114

(3,824)

(11,341)

63

Note 4—Supplemental Cash Flow Disclosures

ff

The following tabl
non-cash investing and financing

ff

activities for the years ended December 31:

e presents information related to cash paid during

d

the year for int

ff

erest and income taxes as well as detail on

Cash paid during

d

the period for:

Interest
Income taxes

Non-cash investing and finff ancing activities:

Loans transferred to other real estate owned and repossessed assets

Fair value of loans transferred from held to maturity
Loans transferred from availabl
Gross increase (decrease) in market value adjustment
available for sale

e for sa

d

ff

ff

t

le to held to maturity

t
to securities

to available for sale

Gross (decrease) increase in market value adjustment
Investments committed to purchase, not settled
Increase in limited partnership investment unfunded commitment

to derivatives

d

Net assets (liabilities) acquired through acquisition
Proceeds from death benefi

t on bank-owned life i

ff

ff nsurance not received

Treasury shares issued

Note 5—Earnings per Share

2020

2019

2018

(dollars in thousands)

$

$

33,964
25,914

$

56,005
21,787

3,865

37,305
4,335

19,911

(4,467)
(34,185)
—

—
(384)

1,594

4,723

30,359
482

20,604

935
25,484
1,469

(361,595)
484

2,531

40,071
23,826

4,334

37,367
—

(5,319)

336
—
—

21,834
—

2,257

ff

The following tabl
diluted earnings per share computation forff

the years ending December 31:

e summarizes the composition of the weighted-average common shares (denominator) used in the basic and

Weighted average common shares issued

Average treasury shares

Average deferred compensation shares

Average unearned nonvested shares

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 (deferred compensation) used to calculated

diluted earnings per share

Weighted average common shares and common stock equivalents used to calculate

diluted earnings per share

Per Share Data

Basic Earnings Per Share

Diluted Earnings Per Share

2020

2019

2018

113,914,902

113,914,902

113,914,902

(16,254,304)

(15,447,299)

(14,747,687)

(42,751)

(118,261)

(37,496)

(112,320)

(37,411)

(93,641)

97,499,586

98,317,787

99,036,163

203,836

231,957

149,939

55,543

38,420

37,411

97,758,965

98,588,164

99,223,513

$

$

0.75

0.75

$

$

1.07

1.07

$

$

1.09

1.08

ff

The following tabl
included in the computation of diluted earnings per share for the years ended December 31, because to do so would have been
anti-dilutive.

e shows the number of shares and the price per share related to common stock equivalents that were not

12/31/2020

Price Range

12/31/2019

Price Range

12/31/2018

Price Range

Shares

From

To

Shares

From

To

Shares

From

To

Restricted Stock

Restricted Stock Units

92,499

106,931

$

$

13.72

12.43

$

$

15.44

15.37

81,730

26,217

$

$

12.99

16.62

$

$

15.44

16.62

71,560

$

8.84

$

14.49

— $

— $

—

64

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 local Federal Reserve Bank. First Commonwealth Bank maintained average balances of
$173.2 million during 2020 and $14.7 million during 2019 with the Federal Reserve Bank of Cleveland.

Note 7—Derivatives

Derivatives Not Designated as Hedging Instruments

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

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

We have 36 risk participation agreements with financial institution counterparties for interest rate swaps related to loans in
which we are a participant. The risk participation agreements provide credit protection to the financial institution should the
borrower fail to perform on its interest rate derivative contract with the financial institution. We have 14 risk participation
agreements with financial institution counterparties for interest rate swaps related to loans in which we are the lead bank. The
risk participation agreement provides credit protection to us should the borrower fail to perform on its interest rate derivative
contract with us.

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

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

Derivatives Designated as Hedging Instruments

In 2015, the Company entered into an interest rate swap contract, which was designated as a cash flow hedge. This contract,
which had a total notional amount of $70.0 million, matured on March 4, 2019. The periodic net settlement of interest rate
swaps was an adjustment to "Interest and fees on loans" in the Consolidated Statements of Income. For the year ended
December 31, 2019 and 2018, there was a negative impact of $0.1 million and $0.6 million, respectively, on interest income as
a result of these interest rate swaps.

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

The periodic net settlement of these interest rate swaps are recorded as an adjustment to "Interest on subordinated debentures"
in the Consolidated Statement of Income. For the year ended December 31, 2020, interest expense increased by $0.4 million as
a result of these interest rate swaps. Changes in the fair value of the cash flow hedges are reported on the balance sheet and in
OCI. When the cash flows associated with the hedged item are realized, the gain or loss included in OCI is recognized in
"Interest on subordinated debentures," the same line item in the Consolidated Statements of Income as the income on the

65

hedged items. The cash flow hedges were highly effective at December 31, 2020 and changes in the fair value attributed to
hedge ineffectiveness were not material.

The Company also enters into interest rate lock commitments in conjunction with its mortgage origination business. These are
commitments to originate loans whereby the interest rate on the loan is determined prior to funding and the customers have
locked into that interest rate. The Company locks in the rate with an investor and commits to deliver the loan if settlement
occurs (“best efforts”) or commits to deliver the locked loan in a binding (“mandatory”) delivery program with an investor.
Loans under mandatory rate lock commitments are covered under forward sales contracts of mortgage-backed securities
(“MBS”). Forward sales contracts of MBS are recorded at fair value with changes in fair value recorded in "Noninterest
income" in the Consolidated Statements of Income. The impact to noninterest income for the years ended December 31, 2020
and 2019 was an increase of $0.4 million and $0.1 million, respectively, and the impact to noninterest expense for the year
ended December 31, 2018 was a decrease of $0.2 million.

Interest rate lock commitments and commitments to deliver loans to investors are considered derivatives. The market value of
interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because they are not
actively traded in stand-alone markets. We determine the fair value of rate lock commitments and delivery contracts by
measuring the fair value of the underlying asset, which is impacted by current interest rates and taking into consideration the
probability that the rate lock commitments will close or will be funded. At December 31, 2020, the underlying funded
mortgage loan commitments had a carrying value of $25.0 million and a fair value of $28.4 million, while the underlying
unfunded mortgage loan commitments had a notional amount of $47.9 million. At December 31, 2019, the underlying funded
mortgage loan commitments had a carrying value of $9.8 million and a fair value of $10.7 million, while the underlying
unfunded mortgage loan commitments had a notional amount of $25.5 million.

In addition, a small amount of interest income on loans is exposed to changes in foreign exchange rates. Several commercial
borrowers have a portion of their operations outside of the United States and borrow funds on a short-term basis to fund those
operations. In order to reduce the risk related to the translation of foreign denominated transactions into U.S. dollars, the
Company enters into foreign exchange forward contracts. These contracts relate principally to the Euro and the Canadian dollar.
The contracts are recorded at fair value with changes in fair value recorded in "Other operating expenses" in the Consolidated
Statements of Income. The impact on other noninterest expense for the year ended December 31, 2020 totaled $18 thousand.
At December 31, 2020, the underlying loans had both a carrying value and a fair value of $2.1 million. At December 31, 2019,
the underlying loans had both a carrying value and a fair value of $4.8 million.

66

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

Derivatives not Designated as Hedging Instruments

Credit value adjustment

Notional Amount:

Interest rate derivatives

Interest rate capsa
Interest rate collars

Risk participation agreements

Sold credit protection on risk participation agreements

Interest rate options

Derivatives Designated as Hedging Instruments

Interest rate swaps:

Fair value adjustment
Notional Amount

Interest rate forwards:

ff
Fair value adjustment

Notional Amount

Foreign exchange forwards:

Fair value adjustment

Notional Amount

2020

2019

(dollars in thousands)

$

(2,792) $

(272)

631,446

66,527
35,354

220,280
(78,522)

47,874

(3,665)
70,000

(483)

65,000

(5)

2,119

587,275

87,188
35,354

164,632
(69,011)

25,460

801
70,000

(63)

30,000

(41)

4,789

The table below presents the amount representing the change in the faiff
attributable to credit risk included in “Other income” on the Consolidated Statements of Income forff
31:

r value of derivative assets and derivative liabilities

the years ended December

Non-hedging interest rate derivatives:

(Decrease) increase in other income

Decrease in other expense
Hedging interest rate derivatives:

Decrease in interest and feeff
Increase (decrease) in interest from subordinated debentures
Increase in other expense

s on loans

Hedging interest rate forwards:
Increase in other income

Decrease in other expense
Hedging interest rate derivatives:

Increase in other expense

2020

2019

2018

(dollars in thousands)

$

(981) $

—

—
449
—

420

—

18

(269) $

(352)

(118)
(159)
7

106

—

5

787

(332)

(590)
—
10

—

(189)

15

r value of our derivatives is included in a table in Note 17, “Fair Values of Assets and Liabilities,” in the line items

The faiff
“Other assets” and “Other liabilities.”

67

Note 8—Investment Securities

ff
Securities Available f

ll

or Sale

Below is an analysis of the amortized cost and faiff

r values of securities available for sale at December 31:

2020

2019

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

Mortgage-Backed
Securities –
Commercial

Obligations of U.S.
Government-Sponsored
Enterprises:

Mortgage-Backed
Securities –
Residential

Other Government-
Sponsored Enterprises

Obligations of States and
Political Subdivisions

Corporate Securities

$

6,492

$

738

$

— $

7,230

$

7,745

$

596

$

— $

8,341

182,823

8,357

—

191,180

186,316

2,983

(166)

189,133

481,109

14,924

100,996

2

11,154

22,941

243

1,444

—

—

—

—

496,033

660,777

4,113

(2,943)

661,947

100,998

1,000

—

11,397

24,385

17,738

22,919

171

1,043

—

—

—

1,000

17,909

23,962

Total Securities
Available for Sale $ 805,515

$ 25,708

$

— $ 831,223

$ 896,495

$

8,906

$

(3,109) $ 902,292

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

Expected maturities will differ from contractual maturities because
or without call or prepayment penalties. Other fixed income securities within the portfolio also contain prepayment risk.

issuers may have the right to call or repay obligations with

ff

The amortized cost and estimated faiff
are shown below:

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)
Total Debt Securities

r value of debt securities available for sale at Decembe

ff

r 31, 2020, by contractual maturity,

Amortized
Cost

Estimated
Fair Value

$

(dollars in thousands)
104,995
19,349
10,747
—
135,091
670,424
805,515

105,015
20,395
11,370
—
136,780
694,443
831,223

$

$

$

(a) Mortgage Backed Securities include an amortized cost of $189.3 million and a fair value of $198.4 million fo

ff

r Obligations of U.S.

Government agencies issued by Ginnie Mae and an amortized cost of $481.1 million and a faiff
Obligations of U.S. Government-sponsored enterprises issued by Fannie Mae and Freddie Mac.

r value of $496.0 million for

68

Proceeds from sales of securities and gross gains (losses) realized on sales, calls and maturities of securities available forff
were as follows for the years ended December 31:

sale

Proceeds from sales
Gross (losses) gains realized:
Sales Transactions:
Gross gains
Gross losses

Maturities

Gross gains
Gross losses

Net gains

2020

2019

2018

(dollars in thousands)

— $

948

$

15,939

— $
—
—

70
—
70
70

$

— $
(7)
(7)

29
—
29
22

$

4,719
—
4,719

3,383
—
3,383
8,102

$

$

$

Gross gains from maturities recognized in 2020 were the result of calls on municipal securities.

Gross losses on sales transactions recognized in 2019 were the result of the sale of one municipal security afteff
was withdrawn. Gross gains from maturities recognized in 2019 were the result of calls on municipal securities.

r its credit rating

Gross gains from sales transactions of $4.7 million were recognized in 2018 as a result of the sale of the remaining pooled trust
preferred security portfolio. Gross gains from maturities of $3.4 million were recognized in 2018 as a result of successful
auction calls on PreSTL XIV and PreSTL IX, two of our pooled trust preferre

d securities.

rr

r

Securities available for sa
31, 2020 and 2019, respectively, to secure public deposits and for other purposes required or permitted by law.

le with an approximate fair value of $792.1 million and $584.8 million were pledged as of December

ff

69

MM
Securities HelHH d to Mll

aturity

Below is an analysis of the amortized cost and faiff

r values of debt securities held to maturity at December 31:

2020

2019

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
Mortgage-Backed
Securities –
Commercial
Obligations of U.S.
Government-Sponsored
Enterprises:

Mortgage-Backed
Securities –
Residential
Mortgage-Backed
Securities –
Commercial

Obligations of States and
Political Subdivisions

Debt Securities Issued by
Foreign Governments

Total Securities
Held to Maturity

$

2,766

$

138

$

— $

2,904

$

3,392

$

57

$

— $

3,449

36,799

1,441

—

38,240

51,291

18

(184)

51,125

277,351

5,389

(10)

282,730

229,667

1,377

(294)

230,750

9,737

34,391

800

344

705

—

—

—

—

10,081

12,081

35,096

40,092

800

600

67

554

—

—

—

—

12,148

40,646

600

$ 361,844

$

8,017

$

(10) $ 369,851

$ 337,123

$

2,073

$

(478) $ 338,718

The amortized cost and estimated faiff
are shown below. Expected maturities wil
t
repay obligations with or without call or prepayment penalties.

ff

r value of debt securities held to maturity at December 31, 2020, by contractual maturity,
l maturities because borrowers may have the right to call or

l differ from contractua

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)
Total Debt Securities

Amortized
Cost

Estimated
Fair Value

(dollars in thousands)

2,500

$

7,669
20,126

4,896
35,191

326,653
361,844

$

2,525

7,742
20,689

4,940
35,896

333,955
369,851

$

$

(a) Mortgage Backed Securities include an amortized cost of $39.6 million and a fair value of $41.1 million for

ff

Obligations of U.S.

Government agencies issued by Ginnie Mae and an amortized cost of $287.1 million and a faiff
Obligations of U.S. Government-sponsored enterprises issued by Fannie Mae and Freddie Mac.

r value of $292.8 million for

Securities held to maturity with an amortized cost of $228.1 million and $306.8 million were pledged as of December 31, 2020
and 2019, respectively, to secure public deposits forff

other purposes required or permitted by law.

Other Investments

As a member of the Federal Home Loan Bank ("FHLB"), First Commonwealth is required to purchase and hold stock in the
FHLB to satisfy membership and borrowing requirements. The level of stock required to be held is dependent on the amount of
First Commonwealth's mortgage related assets and outstanding borrowings with the FHLB. This stock is restricted in that it can
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
and the
restrictions, FHLB stock is unlike other investment securities insofar as there is no trading market for FHLB stock

ff

70

transfer price is determined by FHLB membership rules and not by market participants. As of December 31, 2020 and 2019,
our FHLB stock totaled $10.6 million and $15.1 million, respectively and is included in “Other investments” on the
Consolidated Statements of Financial Condition.

FHLB stock is held as a long-term investment and its value is determined based on the ultimate recoverability of the par value.
First Commonwealth evaluates impairment quarterly and has concluded that the par value of its investment in FHLB stock will
be recovered. Accordingly, no impairment charge was recorded on these securities for the year ended December 31, 2020.

At both December 31, 2020 and 2019, Other Investments also includes $1.7 million in equity securities. These securities do not
have a readily determinable faiff
r value and are carried at cost. For the years ended December 31, 2020 and 2019, there were no
gains or losses recognized through earnings on equity securities. On a quarterly basis, management evaluates equity securities
by reviewing research reports, analysts’ recommendations, credit rating changes, news stories, annual reports, regulatory
filings, impact of interest rate changes and other relevant information.

Impairment of Investment Securities

ii

On January 1, 2020, First Commonwealth adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326), which
requires estimated credit losses on held to maturity securities be recorded as an allowance for credit loss instead of a reduction
in the amortized cost of the securities. Prior to the adoption of ASU 2016-13, credit related other-than-temporary impairment on
debt securities was recognized in earnings while non-credit related other-than-temporary impairment on debt securities not
expected to be sold was recognized in OCI.

d

There were no estimated credit losses recorded during the year
31, 2019 and 2018, no other-than-temporary impairment charges were recognized.

d

ended December 31, 2020. During the years ended December

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.

We review our investment portfolio on a quarterly basis for indications of impairment. For available forff
review includes analyzing the finff ancial 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
cash flow needs, liquidity position, capita
evaluated for impairment on
to the investment category. If this evaluation determines that credit losses exist an allowance for credit loss is recorded and
included in earnings as a component of credit loss expense.

l adequacy, tax position and interest rate risk position. Held-to-maturity securities are
a quarterly basis using historical probability of default and loss given default information specific

investment strategy for the particular type of security and our

sale securities the

u

a

ff

ff

The following tabl
securities for which an allowance for credit losses has not been recorded and held to maturity securities by investment category
and time frame for which the securities have been in a continuous unrealized loss position:

e presents the gross unrealized losses and estimated faiff

r values at December 31, 2020 for available forff

sale

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-Sponsored
Enterprises:

Mortgage-Backed Securities – Residential

Total Securities

3,755
3,755

$

$

(10)
(10) $

—
— $

—
— $

3,755
3,755

$

(10)
(10)

At December 31, 2020, fixeff
d income securities issued by U.S. Government-sponsored enterprises comprised 100% of total
unrealized losses. All unrealized losses are a result of changes in market interest rates. At December 31, 2020, there were 2
debt securities in an unrealized loss position, all of which related to residential mortgage-backed securities with an unrealized
loss of less than 12 months. There were no equity securities in an unrealized loss position at December 31, 2020.

71

The following table presents the gross unrealized losses and estimated fair value at December 31, 2019 for both available for
sale and held to maturity securities by investment category and time frame for which the securities had been in a continuous
unrealized loss position:

Less Than 12 Months

12 Months or More

Total

Estimated
Fair Value

Gross
Unrealized
Losses

Estimated
Fair Value

Gross
Unrealized
Losses

Estimated
Fair Value

Gross
Unrealized
Losses

(dollars in thousands)

Obligations of U.S. Government Agencies:

Mortgage-Backed Securities – Commercial

$

54,501

$

(201) $

16,365

$

(149) $

70,866

$

(350)

Obligations of U.S. Government-Sponsored
Enterprises:

Mortgage-Backed Securities – Residential

Total Securities

111,969
$ 166,470

$

(436)
219,015
(637) $ 235,380

$

(2,801)
330,984
(2,950) $ 401,850

$

(3,237)
(3,587)

As of December 31, 2020, our corporate securities had an amortized cost and estimated fair value of $22.9 million and $24.4
million, respectively, and were comprised of debt forff
amortized cost of $22.9 million and estimated fair value of $24.0 million. When unrealized losses exist, management reviews
each of the issuer’s asset quality, earnings trend and capital position, to determine whether the unrealized loss position is a
result of credit losses. All interest payments on the corporate securities are being made as contractually required.

large regional banks. At December 31, 2019, these securities had an

There was no expected credit related impairment recognized on investment securities during the twelve months ended
December 31, 2020. Prior to 2020, investment securities were evaluated for other-than-temporary impairment
of our pooled trust preferre
Other-than-temporary impairment charges were recognized on the pooled trust preferre
following tabla e provides a cumulative roll forward of credit losses recognized in earnings for the trust preferred securities for
the years ended December 31:

d collateralized debt obligations were liquidated either through a successful auction call or sale.
r

d securities in 2008, 2009 and 2010. The

. During 2018, all

r

ff

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 floff ws expected to be collected, recognized over the remaining life of the
securities (b)
Reduction for debt securities sold during the period
Reduction for debt securities called during the period
Balance, ending

2019

2018

(dollars in thousands)
— $

12,208

$

—

—

—

—
—

$

— $

—

—

(223)

(9,164)
(2,821)

—

(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 either as principal payments or interest income during

d

the period.

72

Note 9—Loans and Allowance for Credit Losses

Loans are presented in the Consolidated Statements of Financial Condition net of deferred loan fees and costs, and discounts
related to purchased loans. Net deferred fees were $6.0 million as of December 31, 2020 and net deferred costs were $2.8
million as of December 31, 2019 and discounts on purchased loans were $7.0 million and $8.5 million at December 31, 2020
and 2019, respectively. The following table provides outstanding balances related to each of our loan types as of December 31:

Commercial, financial, agricultural and other

$

Time and demand

Commercial credit cards

Real estate construction

Residential real estate

Residential firff st lien
Residential junior lien/home equity

Commercial real estate

Multifamily

Nonowner occupied
Owner occupied
Loans to individuals

Automobile

Consumer credit cards
Consumer other
Total loans

2020

2019

Total Loans

Originated Loans

Acquired Loans

Total Loans

(dollars in thousands)

$

1,212,026

$

29,827

$

1,241,853

442,777

1,415,808

6,262

265,554

449,039

1,681,362

1,958,346

159,173

2,117,519

685,416

13,959

699,375

1,555,986
1,541,382

14,604
427,221

1,750,592

1,144,323
606,269

2,211,569
371,239

1,421,151
419,179

815,815
712,800

12,360
90,655

$

6,761,183

$

5,714,373

$

474,775

$

6,189,148

a

The above table reflect
in 2020, eleven categories with similar risk characteristics were identified. The totals provided for 2019 refle
used in 2019 under the incurred methodology.

s loan categories used in the calculation of the allowance for credit losses. With the adoption of CECL
ct the categories

ff

Commercial, financial, agricultural and other loans at December 31, 2020 includes $478.9 million in PPP loans for small
businesses who meet the necessary err
and are forgivable, in whole or in part, if the proceeds are used for payroll and other permitt
PPP requirements. Because PPP loans are fully guaranteed by the SBA, there is no allowance for credi
these loans. Although the Company believes that the majority of these loans will ultimately be forgiven by the SBA in
accordance with the terms of the program, there could be risks and liability to the Company associated with participation in the
program.

ligibility requirements. PPP loans are 100% guaranteed by the SBA under the CARES Act
ed purposes in accordance with the

t losses recognized forff

ff

ff

First Commonwealth’s loan portfolio includes five primary
these categories are classified into eleven portfolio segments. The composition of loans by portfolio segment includes;

loan categories. When calculating the allowance for credit losses

ff

Commercial, financial, agricultural and other
Time & Demand - Consists primarily of commercial and industrial loans. This category consists of loans that are typically cash
flow dependent and therefore have different risk and loss characteristics than other commercial loans. Loans in this category
include revolving and term structures with fixed and variable interest rates. The primary macroeconomic drivers for estimating
credit losses for thi

s category include forecasts of national unemployment and economic conditions measured by GDP.

ff

CC

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

- Consists of unsecured credit cards forff

d

Real estate construction
Includes both 1-4 family and commercial construction loans. The risk and loss characteristics of the construction category are
different than other real estate secured categories due to the collateral being at various stages of completion. The primary

73

macroeconomic drivers for estimating credit losses for this category include forecasts of national unemployment and measures
of completed construction projects.

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

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

Commercial real estate
Multifamily - Consists of loans secured by commercial multifamily properties. Real estate related to rentals to consumers could
provide unique risk and loss characteristics. The primary macroeconomic drivers for estimating credit losses for this category
include forecasts of commercial real estate values and rental vacancy.

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

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

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

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

Other Consumer - Consists of lines of credit, student loans and other consumer loans, not secured by real estate or autos. The
primary macroeconomic drivers for estimating credit losses for this category include forecasts of consumer sentiment and the
level of household debt.

The allowance for credit losses is calculated by pooling loans of similar credit risk characteristics and applying a discounted
cash flow methodology after incorporating probability of default and loss given default estimates. Probability of default
represents an estimate of the likelihood of default and loss given default measures the expected loss upon default. Inputs
impacting the expected losses include a forecast of macroeconomic factors, using a weighted forecast from a nationally
recognized firm. Our model incorporates a one-year forecast of macroeconomic factors, after which the factors revert back to
the historical mean over a one-year period. The most significant macroeconomic factor used in estimating credit losses is the
national unemployment rate. The forecasted value for national unemployment at December 31, 2020 was 6.68% and during the
one-year forecast period it was projected to average 7.25%, with a peak of 7.48%.

74

y
Credit Quality Information

Q

f

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

Pass

Acceptable levels of risk exist in the relationship. Includes all loans not classified as OAEM, substandard or
doubtful.

p

Other Assets
y
Especially
Mentioned
)
(OAEM)
(

Substandard

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.
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.

The

ff

Well-defined weakness or a weakness that jeopardizes the repayment of the debt. A loan may be classified
as substandard as a result of deterioration of the borrower’s financial condition and repayment capacity.
Loans for which repayment plans have not been met or collateral equity margins do not protect the
Company may also be classified as substandard.

Doubtful

Loans with the characteristics of substandard loans with the added characteristic that collection or
liquidation in full, on the basis of presently existing facts and conditions, is highly improbable.

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

The following tables

ff

represent our credit risk profile by creditworthiness category for the years ended December 31:

Pass

OAEM

Substandard

Doubtful

Loss

Total Non-
Pass

Total

(dollars in thousands)

Commercial, financial,
agricultural and other

$

1,491,916

$

48,233

$

15,837

$

— $

— $

64,070

$

1,555,986

2020

Non-Pass

Time and demand

1,477,312

48,233

15,837

—

54

7,698

4,134

3,564

52,316

1,225

43,563

7,528

274

261

—

13

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

64,070

1,541,382

—

14,604

558

9,600

5,914

427,221

1,750,592

1,144,323

3,686

606,269

228,311

2,211,569

1,356

204,899

22,056

274

261

—

13

371,239

1,421,151

419,179

815,815

712,800

12,360

90,655

$

6,458,370

$

226,634

$

76,179

$

— $

— $

302,813

$

6,761,183

Commercial credit
cards

Real estate
construction

Residential real estate

Residential first lien

Residential junior lien/
home equity

14,604

426,663

1,740,992

1,138,409

602,583

—

504

1,902

1,780

122

Commercial real estate

1,983,258

175,995

369,883

1,216,252

397,123

815,541

712,539

12,360

90,642

131

161,336

14,528

—

—

—

—

Multifamily

Nonowner occupied

Owner occupied

Loans to individuals

Automobile

Consumer credit cards

Consumer other

Total

75

2019

Commercial,
financial,
agricultural
and other

Real estate
construction

Residential real
estate

Commercial
real estate

Loans to
individuals

Total

(dollars in thousands)

$ 1,171,363

$

442,751

$ 1,406,845

$ 1,918,690

$

685,108

$ 5,624,757

29,359

11,304
—

40,663

26

—
—

26

475

8,488
—

8,963

13,533

26,123
—

39,656

—

308
—

308

43,393

46,223
—

89,616

Originated Loans

Pass

Non-Pass

OAEM

Substandard
Doubtful

Total Non-Pass

Total

$ 1,212,026

$

442,777

$ 1,415,808

$ 1,958,346

$

685,416

$ 5,714,373

Acquired Loans

Pass

Non-Pass

OAEM

Substandard
Doubtful

$

27,696

$

5,697

$

262,630

$

153,814

$

13,947

$

463,784

2,009

122
—

565

—
—

537

2,387
—

2,072

3,287
—

—

12
—

5,183

5,808
—

Total Non-Pass

Total

2,131
29,827

$

$

565
6,262

$

2,924
265,554

$

5,359
159,173

$

12
13,959

$

10,991
474,775

76

The following table summarizes the loan risk rating category by loan type including term loans on an amortized cost basis by
origination year as of December 31, 2020:

Term Loans

2020

2019

2018

2017

2016

Prior

(dollars in thousands)

Revolving
Loans

Total

Time and demand

$ 598,053

$ 193,601

$ 142,224

$

72,277

$

74,228

$

83,313

$ 377,686

$1,541,382

Pass

OAEM

Substandard

Commercial credit cards

Pass

Real estate construction

Pass

OAEM

Substandard

Residential first lien

Pass

OAEM

Substandard

Residential junior lien/home
equity

Pass

OAEM

Substandard

Multifamily

Pass

OAEM

Substandard

Nonowner occupied

Pass

OAEM

Substandard

Owner occupied

Pass

OAEM

Substandard

Automobile

Pass

Substandard

Consumer credit cards

Pass

Consumer other

Pass

Substandard

Total

597,405

189,834

140,473

63,137

93

555

—

—

3,373

394

—

—

972

779

—

—

150,493

150,493

133,195

133,195

104,167

104,167

—

—

—

—

—

—

8,820

320

—

—

34,803

34,803

—

—

316,052

316,028

184,550

184,533

142,823

142,467

110,365

110,260

—

24

3,055

3,055

—

—

76,249

76,249

—

—

105,861

105,861

—

—

59,519

58,551

968

—

350,293

350,293

—

—

—

7,814

7,814

—

—

17

5,783

5,698

—

85

16,287

16,287

—

—

199,280

190,301

8,979

—

72,313

70,726

684

903

202,923

202,827

96

—

—

14,464

14,464

—

83

273

4,545

4,545

—

—

69,439

69,439

—

—

161,018

139,643

21,375

—

61,079

55,478

4,736

865

96,355

96,336

19

—

—

10,752

10,752

—

—

105

2,005

2,005

—

—

66,963

66,963

—

—

214,915

181,659

26,339

6,917

40,796

39,351

1,421

24

45,218

45,187

31

—

—

1,965

1,965

—

68,007

6,182

39

—

—

389

389

—

—

91,495

91,059

100

336

1,303

1,303

—

—

34,383

34,383

—

—

217,883

175,148

37,762

4,973

27,415

26,359

114

942

14,285

14,255

30

—

—

711

711

—

65,418

353,038

1,477,312

8,043

9,852

—

—

1,009

709

246

54

297,057

292,158

1,520

3,379

7,127

6,909

112

106

106,328

104,972

131

1,225

518,052

419,900

66,752

31,400

152,555

141,376

6,572

4,607

3,726

3,641

85

—

—

6,383

6,373

10

20,750

3,898

14,604

14,604

3,165

2,907

258

—

1,981

1,904

77

—

582,451

579,068

10

3,373

1,590

1,590

—

—

4,142

3,740

129

273

5,502

5,282

33

187

—

—

—

12,360

12,360

48,566

48,563

3

48,233

15,837

14,604

14,604

427,221

426,663

504

54

1,144,323

1,138,409

1,780

4,134

606,269

602,583

122

3,564

371,239

369,883

131

1,225

1,421,151

1,216,252

161,336

43,563

419,179

397,123

14,528

7,528

712,800

712,539

261

12,360

12,360

90,655

90,642

13

$1,667,389

$1,022,396

$ 792,402

$ 589,307

$ 462,092

$1,175,550

$1,052,047

$6,761,183

77

Portfolio Risks

f

ff

The credit quality of our loan portfoli
Commonwealth devotes a substantial
department that develops and administers policies and procedures for underwriting, maintaining, monitoring and collecting
loans. Credit administration is independent of lending departments and oversight is provided by the credit committee of the
First Commonwealth Board of Directors.

o can potentially represent significant risk to our earnings, capital and liquidity. First
amount of resources managing this risk primarily through our credit administration

u

Total gross charge-offs for the years ended December 31, 2020 and 2019 were $19.3 million and $12.3 million, respectively.

Age Analysis of Past Due Loans by Segment

g

g

y

y

f

ff

The following tables delineat
a
included in these tables are loans tha
process of collection.

e the aging analysis of the recorded investments in past due loans

d

as of December 31. Also

t are 90 days or more past due and still accruing because the

r

y are well-secured and in the

2020

30 - 59
days
past due

60 - 89
days
past
due

90 days
and
greater
and still
accruing

Nonaccrual

Total past
due and
nonaccrual

(dollars in thousands)

Current

Total

Commercial, financial,
agricultural and other

Time and demand

Commercial credit cards

Real estate construction

Residential real estate

Residential first lien

Residential junior lien/home
equity

Commercial real estate

Multifamily

Nonowner occupied

Owner occupied

Loans to individuals

Automobile

Consumer credit cards

Consumer other

Total

$

146

$

97

49

936

3,883

1,775

2,108

237

—

18

219

2,870

2,090

52

728

62

28

34

—

1,492

660

832

160

—

104

56

852

417

39

396

$

112

$

3,317

$

3,637

$ 1,552,349

$ 1,555,986

23

89

—

769

267

502

3

—

—

3

639

94

123

422

3,317

3,465

1,537,917

1,541,382

—

54

6,824

3,489

3,335

35,072

460

31,822

2,790

274

261

—

13

172

990

12,968

6,191

6,777

35,472

460

14,432

426,231

14,604

427,221

1,737,624

1,750,592

1,138,132

1,144,323

599,492

606,269

2,176,097

2,211,569

370,779

371,239

31,944

1,389,207

1,421,151

3,068

4,635

2,862

214

1,559

416,111

811,180

709,938

12,146

89,096

419,179

815,815

712,800

12,360

90,655

$

8,072

$

2,566

$

1,523

$

45,541

$

57,702

$ 6,703,481

$ 6,761,183

78

30 - 59
days
past due

60 - 89
days
past
due

90 days
and
greater
and still
accruing

2019

Total past
due and
nonaccrual

Nonaccrual

(dollars in thousands)

Current

Total

Originated Loans

Commercial, financial,
agricultural and other
Real estate construction

Residential real estate
Commercial real estate

Loans to individuals

Total

Acquired Loans

Commercial, financial,
agricultural and other
Real estate construction

Residential real estate
Commercial real estate

Loans to individuals

$

$

$

$

$

$

391
198

3,757
227

4,070
8,643

1
—

304
—

87

57
—

749
114

1,020
1,940

$

$

— $
—

207
107

89

$

$

$

140
9

736
—

931
1,816

1
—

221
—

35

$

$

$

8,780
—

6,646
6,609

307
22,342

74
—

1,949
298

12

9,368
207

$ 1,202,658
442,570

$ 1,212,026
442,777

11,888
6,950

6,328
34,741

1,403,920
1,951,396

1,415,808
1,958,346

679,088
$ 5,679,632

685,416
$ 5,714,373

$

76
—

2,681
405

223

$

29,751
6,262

262,873
158,768

13,736

29,827
6,262

265,554
159,173

13,959

Total

$

392

$

403

$

257

$

2,333

$

3,385

$ 471,390

$

474,775

Nonaccrual Loans

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

consumer loans which are placed in nonaccrual status

rr

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 returne
d 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 in doubt.

ff

t

Nonperforming Loans

p f

g

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

interest rate, except when the sole source or repayment for the loan is the operation or liquidation of collateral. When

d value less estimated cost to sell is utilized. If management determines the value of

d

a

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

a

There was one nonperforming loan totaling $13 thousand held for sale at December 31, 2020 and no nonperforming loans held
the year ended December
for sale as of December 31, 2019. There were no gains on nonperforming loans held for sale during
31, 2020. Total gains of $0.4 million and $1.8 million were recognized on sales of nonperforming loans during
the years ended
December 31, 2019, and 2018 respectively.

d

d

79

The following tables include the recorded investment and unpaid principal balance forff
allowance amount, if applicable, as of December 31, 2020 and 2019. Also presented are the average recorded investment in
nonperforming loans and the related amount of interest recognized while the loan was considered nonperforming forff
the years
ended December 31, 2020, 2019 and 2018. Average balances are calculated based on month-end balances of the loans for the
period reported and are included in the table below based on its period end allowance position.

nonperforming loans with the associated

Recorded
investment

Unpaid
principal
balance

2020

Related
specific
allowance

(dollars in thousands)

Average
recorded
investment

Interest
Income
Recognized

With no related specific allowance recorded:

Commercial, financial, agricultural and
other

$

Time and demand

Real estate construction

Residential real estate

Residential first lien

Residential junior lien/home equity

Commercial real estate

Multifamily

Nonowner occupied

Owner occupied

Loans to individuals

Automobile

Consumer other

Subtotal

With a specific allowance recorded:

Commercial, financial, agricultural and
other

Time and demand

Real estate construction

Residential real estate

Residential first lien

Residential junior lien/home equity

Commercial real estate

Multifamily

Nonowner occupied

Owner occupied

Loans to individuals

Automobile

Consumer other

Subtotal

Total

$

2,025
2,025
54
10,939
6,062
4,877
20,650
1
16,786
3,863
418
405
13
34,086

4,210
4,210
—
—
—
—
15,757
459
15,060
238
—
—
—

19,967
54,053

$

$

2,725
2,725
53
13,258
7,575
5,683
23,641
82
19,459
4,100
447
430
17
40,124

9,377
9,377
—
—
—
—
15,830
470
15,122
238
—
—
—

25,207
65,331

$

$

6,371
6,371
146
11,913
6,605
5,308
22,287
1
18,536
3,750
470
447
23
41,187

1,544
1,544
—
—
—
—
7,997
395
7,363
239
—
—
—

80
80
14
335
241
94
184
—
82
102
13
13
—
626

3
3
—
—
—
—
10
—
—
10
—
—
—

9,541
50,728

$

$

13
639

1,268
1,268
—
—
—
—
3,638
116
3,508
14
—
—
—

4,906
4,906

$

80

Originated Loans:

With no related specific allowance recorded:

Commercial, financial, agricultural and other

$

Real estate construction

Residential real estate

Commercial real estate

Loans to individuals

Subtotal

With a specific allowance recorded:

Commercial, financial, agricultural and other

Real estate construction

Residential real estate

Commercial real estate

Loans to individuals

Subtotal

Total

Acquired Loans:

With no related specific allowance recorded:

Commercial, financial, agricultural and other

Real estate construction

Residential real estate

Commercial real estate

Loans to individuals

Subtotal

With a specific allowance recorded:

Commercial, financial, agricultural and other

Real estate construction

Residential real estate

Commercial real estate

Loans to individuals

Subtotal

Total

$

$

$

Recorded
investment

Unpaid
principal
balance

2019
Related
specific
allowance
(dollars in thousands)

Average
recorded
investment

Interest
Income
Recognized

1,848
—
10,372
3,015
406
15,641

8,290
—
474
5,293
—
14,057
29,698

73
—
2,136
298
12
2,519

—
—
—
—
—
—
2,519

$

$

$

$

$

$

$

$

$

1,580
—
1
851
—
2,432
2,432

6,997
—
12,437
3,210
640
23,284

10,032
—
498
5,308
—
15,838
39,122

73
—
2,585
320
15
2,993

— $
—
—
—
—
—
2,993

$

—
—
—
—
—
—
— $

2,411
—
10,819
7,455
371
21,056

4,110
—
241
1,747
—
6,098
27,154

2,479
—
1,986
747
13
5,225

—
—
—
—
—
—
5,225

$

$

$

$

66
—
365
156
17
604

77
—
—
3
—
80
684

—
—
8
18
—
26

—
—
—
—
—
—
26

81

With no related specific allowance recorded:

Commercial, financial, agricultural and other

$

18,480

$

Real estate construction
Residential real estate

Commercial real estate
Loans to individuals

Subtotal

With a specific allowance recorded:

Commercial, finff ancial, agricultural and other
Real estate construction

Residential real estate

Commercial real estate
Loans to individuals

Subtotal
Total

2018

Originated

Acquired

Average
recorded
investment

Interest
Income
Recognized

Average
recorded
investment

Interest
Income
Recognized

(dollars in thousands)

—
10,651

7,919
310

37,360

2,531
—

504

991
—

602

—
271

177
11

1,061

20
—

13

4
—

$

214

$

—
1,906

1,565
16

3,701

11
—

—

—
—

4,026
41,386

$

$

37
1,098

$

11
3,712

$

10

—
5

—
—

15

—
—

—

—
—

—
15

Unfunded commitments related to nonperforming loans were $0.2 million and $1.7 million at December 31, 2020 and 2019,
respectively. After considering the collateral related to these commitments, a reserve of $26 thousand and $12 thousand was
established for these off balance sheet exposures at Decembe

r 31, 2020 and 2019, respectively.

ff

Troubled debt restructured
principal or interest as a result of the financial difficultie
from alternate financing sources. Troubled debt restructured

ff

rr

rr

s experienced by the borrower, who could not obtain comparable terms

loans are considered to be nonperforming loans.

loans are those loans whose terms have been renegotiated to provide a reduction or deferral of

In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 national
emergency. These modifications typically provide forff
l of both principal and interest for 90 days. The CARES Act,
ff
the deferra
along with a joint agency statement issued by banking regulators, provides that short-term modifications, meeting certain
criteria and in response to COVID-19, do not need to be accounted forff
term loan modifications that are not accounted for as a troubled debt restructured loan, in accordance with the CARES Act,
would remain classified as current during the deferra
ff
on the prior page. During the year ended December 31, 2020, the Company granted approximatel
modifications to its customers with aggregate principal balances of $1.4 billion. Most of these deferrals were forff
period, which expired before year end. As of December 31, 2020, the balance of loans in deferral status had falle
$113.8 million. It is likely that some customers that are no longer in the deferral period will be granted an additional 90 day
deferral in order to provide support for the continued impact of COVID-19. The decision to grant an additional forbe
be credit driven and will be based on a complete evaluation of the customer's financial circumstances.

y 6,800 short-term loan
a 90-day
n to

l period and therefore are not reflected in the past dued

as a troubled debt restructured

a

r

ff

ff

loan tables provided

loans. Additionally, short-

arance will

82

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:

Troubled debt restructured loans

Accrual status

Nonaccrual status

Total
Commitments

Letters of credit

Unused lines of credit

Total

2020

2019

2018

(dollars in thousands)

$

$

$

$

8,512

14,740
23,252

60

11
71

$

$

$

$

7,542

6,037
13,579

60

163
223

$

$

$

$

8,757

11,761
20,518

60

1,027
1,087

ff

The following tables provide detail
troubled debt restructurings during the years ending December 31:

, including specific reserve and reasons for modification, related to loans identified as

Type of Modification

2020

Number
of
Contracts

Extend
Maturity

Modify
Rate

Modify
Payments

Total
Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Specific
Reserve

4

4
18

9

9

5
4

1
14

14
41

$

— $

—
—

—

—

—
—

—
—

$
$

— $
— $

(dollars in thousands)

$

2,176

$

2,805

$

2,196

$

2,176
917

513

404

10,857
10,289

568
148

2,805
950

546

404

10,857
10,289

568
262

2,196
791

411

380

10,758
10,263

495
224

$
$

148
14,098

$

262
14,874

$
$

224
13,969

$
$

629

629
33

33

—

—
—

—
114

114
776

636

636
—

—

—

—
—

—
—

—
636

Commercial, financial,
agricultural and other

Time and demand

Residential real estate

Residential first lien

Residential junior lien/
home equity

Commercial real estate

Nonowner occupied

Owner occupied

Loans to individuals

Automobile

Total

83

Type of Modification

2019

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

Residential real estate

Commercial real estate

Loans to individuals

Total

2
20

5
11

38

Number
of
Contracts

3
37

3

15
58

Commercial, financial,
agricultural and other

Residential real estate

Commercial real estate

Loans to individuals

Total

$

$

$

$

— $
17

—
—

17

$

— $
204

556
—

760

$

156
965

6,261
143

$

156
1,186

6,817
143

$

154
1,059

594
121

$

7,525

$

8,302

$

1,928

$

Type of Modification

2018

Extend
Maturity

Modify
Rate

Modify
Payments

Total
Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Specific
Reserve

(dollars in thousands)

74
242

—

—
316

$

$

— $
241

—

89
330

$

8,250
1,316

1,016

53
10,635

$

$

8,324
1,799

1,016

142
11,281

$

$

6,104
1,638

975

112
8,829

$

$

—
—

—
—

—

—
—

—

—
—

The troubled debt restructurings included in the above tables are also included in the nonperforming loan tabla es provided earlier
a change in rate as well
in this footnote. Loans defined as modified due to a change in rate include loans that were modified forff
as a reamortization of the principal and an extension of the maturity. For the years ended December 31, 2020, 2019 and 2018,
$0.8 million, $0.8 million and $0.3 million, respectively, of total rate modifications represent loans with modifications to the
rate as well as payment due to reamortization. For 2020, 2019 and 2018, the changes in loan balances between the pre-
modification balance and post-modification balance are due to customer payments. In 2020, the change between the pre-
modification and post-modification balance for commercial real estate loans is primarily dued
commercial relationship that restructured during the year.

to the payoff of one large

d

A troubled debt restructuring is considered to be in defaul
t when a restructured loan is 90 days or more past due. The following
tabla e provides information related to loans that were restructured within the past twelve months and that were considered to be
in default during

the year ending December 31:

d

ff

Residential real estate

Residential junior lien/home equity

Loans to individuals

Automobile

Total

2020

2019

2018

Number of
Contracts

Recorded
Investment

Number of
Contracts

Recorded
Investment

Number of
Contracts

Recorded
Investment

1

1
2

2

3

$

$

34

34
4
7

74

108

(dollars in thousands)
— $

—

— $

—

—

—

1

$

—

1

$

49

—

49

84

The following tables provide detail related to the allowance for credit losses for the years ended December 31.

2020

Beginning
balance

Impact of
adoption of
CECL

ff
Charge-offs

R

ecoveries

(dollars in thousands)

Provision
(credit)a

Ending
balance

Commercial, financial, agricultural
and other

$

20,234

$

1,478

$

(6,318) $

Time and demand

Commercial credit cards

Real estate construction

Residential real estate

Residential first liens

Residential junior liens/home equity

Commercial real estate

Multifamily

Nownowner occupied

Owner occupied

Loans to individuals

Automobile

Consumer credit cards

Consumer other

Total

—

—

2,558

4,093

—

—

19,768

—

—

—

4,984

—

—

—

21,242

(6,220)

470

562

7,276

7,326

4,043

(207)

1,647

12,317

5,597

4,284

6,106

221

2,941

(98)

—

(1,040)

(550)

(490)

(4,939)

—

(4,678)

(261)

(6,953)

(3,954)

(595)

(2,404)

314

301

13

26

414

296

118

312

—

187

125

991

745

36

210

$

1,479

$

1,515

(36)

4,820

3,615

847

2,768

27,019

4,593

20,588

1,838

16,539

13,236

973

2,330

17,187

16,838

349

7,966

14,358

7,919

6,439

41,953

6,240

28,414

7,299

19,845

16,133

635

3,077

$

51,637

$

13,393

$

(19,250) $

2,057

$

53,472

$

101,309

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

December 31, 2020

Ending balance:
individually
evaluated for
credit losses

Ending balance:
collectively
evaluated for
credit losses

Ending balance

Ending balance

(dollars in thousands)

Loans

Ending balance:
individually
evaluated for
credit losses

Ending balance:
collectively
evaluated for
credit losses

$

17,187

$

1,268

$

15,919

$

1,555,986

$

5,411

$

1,550,575

16,838

349

7,966

14,358

7,919

6,439

41,953

6,240

28,414

7,299

19,845

16,133

635

3,077

1,268

—

—

—

—

—

3,638

116

3,508

14

—

—

—

—

15,570

349

7,966

14,358

7,919

6,439

38,315

6,124

24,906

7,285

19,845

16,133

635

3,077

1,541,382

14,604

427,221

1,750,592

1,144,323

606,269

2,211,569

371,239

1,421,151

419,179

815,815

712,800

12,360

90,655

5,411

1,535,971

—

—

1,105

528

577

34,947

459

31,450

3,038

—

—

—

—

14,604

427,221

1,749,487

1,143,795

605,692

2,176,622

370,780

1,389,701

416,141

815,815

712,800

12,360

90,655

Commercial, financial,
agricultural and other

Time and demand

Commercial credit cards

Real estate construction

Residential real estate

Residential first liens

Residential junior liens/
home equity

Commercial real estate

Multifamily

Nownowner occupied

Owner occupied

Loans to individuals

Automobile

Consumer credit cards

Consumer other

Total

$

101,309

$

4,906

$

96,403

$

6,761,183

$

41,463

$

6,719,720

85

2019

Commercial,
financial,
agricultural
and other

Real estate
construction

Residential
real estate

Commercial
real estate

Loans to
individuals

Total

(dollars in thousands)

$

19,235

$

2,002

$

3,934

$

18,382

$

4,033

$

47,586

—

158

398

2,558

(986)

246

897

4,091

(632)

189

1,792

19,731

— $

35

$

4

$

—

—

—

—

(56)

69

(46)

2

$

$

2,558

$

4,093

— $

1

$

$

(1,376)

—

1,409

37

19,768

851

$

$

(2,667)

245

3,408

20,221

139

$

(726)

81

519

13

20,234

1,580

18,654

$

$

$

(5,747)

(10,032)

611

6,087

4,984

— $

(84)

15

69

—

1,449

12,582

51,585

178

(2,242)

165

1,951

52

4,984

$

51,637

— $

2,432

2,558

4,092

18,917

4,984

49,205

1,241,853

449,039

1,681,362

2,117,519

699,375

6,189,148

9,246

—

1,741

6,846

—

17,833

1,232,607

449,039

1,679,621

2,110,673

699,375

6,171,315

Allowance for credit losses:

Originated Loans:

Beginning balance

Charge-offs

Recoveries

Provision (credit)

Ending balance

Acquired Loans:

Beginning balance

Charge-offs

Recoveries

Provision (credit)

Ending balance

Total ending balance

Ending balance: individually evaluated
for impairment

Ending balance: collectively evaluated
for impairment

Loans:

Ending balance

Ending balance: individually evaluated
for impairment

Ending balance: collectively evaluated
for impairment

86

2018

Commercial,
financial,
agricultural
and other

Real estate
construction

Residential
real estate

Commercial
real estate

Loans to
individuals

Total

(dollars in thousands)

$

23,418

$

1,349

$

2,753

$

17,328

$

3,404

$

48,252

(5,201)

746

272

19,235

11

(93)

42

179

139

—

135

518

2,002

—

—

6

(6)

—

(1,217)

233

2,165

3,934

6

(96)

128

(3)

35

(3,930)

153

4,831

18,382

29

—

—

(25)

4

(4,554)

(14,902)

579

4,604

4,033

—

(22)

26

(4)

—

1,846

12,390

47,586

46

(211)

202

141

178

$

$

19,374

928

$

$

2,002

$

3,969

— $

$

$

18,386

596

$

$

4,033

$

47,764

— $

1,631

17,790

4,033

46,133

107

3,862

18,446

2,002

1,138,473

358,978

1,562,405

2,123,544

590,739

5,774,139

11,631

—

3,747

5,710

—

21,088

1,126,842

358,978

1,558,658

2,117,834

590,739

5,753,051

Allowance for credit losses:

Originated Loans:

Beginning balance

Charge-offs

Recoveries

Provision (credit)

Ending balance

Acquired Loans:

Beginning balance

Charge-offs

Recoveries

Provision (credit)

Ending balance

Total ending balance

Ending balance: individually evaluated
for impairment

Ending balance: collectively evaluated
for impairment

Loans:

Ending balance

Ending balance: individually evaluated
for impairment

Ending balance: collectively evaluated
for impairment

Note 10—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 Consolidated Statements of Financial Condition. First Commonwealth’s exposure to credit loss in
the event of nonperformance by the other party of the financia
l 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
obligations.

all loans, including these commitments and conditional

ff

ff

As of December 31, 2020 and 2019, 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
derivatives entered into by First Commonwealth.

to manage interest rate risk. See Note 7, “Derivatives,” for a description of interest rate

ff

ff

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

s the

ff

87

The following table identifies the notional amount of those instruments at December 31:

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

2020

2019

(dollars in thousands)

$

$

2,097,628
15,988
16,864
783

1,981,275
16,630
23,293
783

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.

The notional amounts outstanding at December 31, 2020 include amounts issued in 2020 of $2.6 million in financial standby
letters of credit and $0.3 million in performance standby letters of credit. There were no commercial letters of credit issued
during 2020. A liability of $0.1 million has been recorded as of December 31, 2020 and 2019, which represents the estimated
fair value of letters of credit issued. The fair
received at the time the commitment was issued.

value of letters of credit is estimated based on the unrecognized portion of fees

ff

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 $7.4 million and $4.5 million as of December 31, 2020 and 2019, respectively. This liability is reflected in “Other
liabilities” in the Consolidated Statements of Financial Condition. The credit risk evaluation incorporates the expected loss
percentage calculated forff

comparable loan categories as part of the allowance forff

credit losses for loans.

ff

Note 11—Premises, Equipment and Lease Commitments

Premises and Equipment

q p

Premises and equipment are described as follows:

ff

Land
Buildings and improvements
Operating lease right of use asset
Leasehold improvements

Furniture and equipment

Software

Subtotal

Less accumulated depreciation and amortization

Total premises and equipment, net

Estimated Useful
Life

2020

2019

(dollars in thousands)

Indefinite $

10-50 years

1-25 years
5-40 years

3-7 years

3-7 years

$

15,441
77,003

48,642
35,347

73,150

41,681
291,264

165,747
125,517

$

$

15,446
76,965

52,114
37,716

71,548

40,399
294,188

156,920
137,268

Depreciation related to premises and equipment included in noninterest expense for the years ended December 31, 2020, 2019
and 2018 amounted to $10.9 million, $10.5 million and $9.5 million, respectively. Amortization of lease right-of-use assets
totaled $2.6 million in 2020 and $3.5 million in 2019.

At December 31, 2020, $2.6 million in premise and equipment assets are considered available for sale as
consolidation initiative.

ff

a result of the branch

Lease Commitments

On January 1, 2019, the Company adopted ASU 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic
842 using the transition option provided in ASU 2018-11, which provides for the modified retrospective approach. Under this

88

approach, comparative periods were not restated and no cumulative effect adjustment to the opening balance of retained
earnings was required.

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

a

Adoption of this standard resulted in the Company recognizing an ROU asset of $38.5 million and a lease liability of $41.8
million on January 1, 2019.

The following tabl

ff

e represents the lease costs and other lease information for the years ended December 31.

Balance sheet:

Operating lease asset classified as premises and equipment

Operating lease liability classified as other liabia lities

Income statement:

Operating lease cost classified as occupancy and equipment
expense

Weighted average lease term, in years

Weighted average discount rate
Operating cash flows

$

$

$

2020

2019

(dollars in thousands)

42,617

46,819

5,930

14.83

3.42 %
5,979

$

$

$

48,642

52,894

5,328

15.27

3.43 %
4,656

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

d by the length of the lease term and the discount rate used to present value the

m

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

In July 2020, the Company announced the consolidation of 29 branch locations, including 12 leased locations, into nearby
offices prior to December 31, 2020. As a result, during the
d
fees and decreased the ROU asset and lease liability by $3.8 million and $3.6 million, respectively.

third quarter, the Company paid $0.7 million in lease termination

ff

The following tabl
subject to recognition) to the lease liability as of December 31, 2020 (dollars in thousands):

e reconciles future minimum lease payments due under non-cancelable operating leases (those amounts

For the twelve months ended

2021
2022

2023
2024
2025
Thereafter

ff

Total future minimum
Less remaining imputed interest

lease payments

Operating lease liability

a

$

$

4,765
4,653

4,533
4,399

4,174
38,325

60,849
14,030

46,819

Rent expense, net of rental income, for al
l operating leases totaled $6.7 million in 2020, $4.9 million in 2019 and $4.1 million
in 2018. Rent expense includes amounts related to items that are not included in the determination of lease right-of-use assets

ff

89

including expenses related to short-term leases and non-lease components such as taxes, insurance, and common area
maintenance costs.

Note 12—Goodwill and Other Intangible Assets

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

r value of a reporting unit

value is

ff

We consider First Commonwealth to be one reporting unit. The carrying amount of goodwill as of December 31, 2020 and
2019 was $303.3 million. No impairment charges on goodwill or other intangible assets were incurred in 2020, 2019 or 2018.

We test goodwill forff
during a quarter that may affecff

t goodwill.

impairment as of November 30th each year and again at any quarter-end if any material events occur

t our performance, the faiff

As of December 31, 2020, goodwill was not considered impaired; however, changing economic conditions that may adversely
affecff
adversely affect earnings in future periods. Management will continue to monitor events that could impact this conclusion in the
future.

k price could result in impairment, which could

r value of our assets and liabilities, or our stoc

a

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 tabl

ff

e summarizes other intangible assets:

December 31, 2020

Customer deposit intangibles

Customer list intangible

Total other intangible assets

December 31, 2019

Customer deposit intangibles
Customer list intangible

Total other intangible assets

Gross
Intangible
Assets

Accumulated
Amortization

(dollars in thousands)

Net
Intangible
Assets

$

$

$

$

22,573

2,283
24,856

25,843
2,283

28,126

$

$

$

$

(11,653) $

(1,570)
(13,223) $

(11,760) $
(1,340)

(13,100) $

10,920

713
11,633

14,083
943

15,026

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 8.7 years and a weighted average
amortization period of approximately 7.1 years. The customer list intangible represents the estimated value of the customer
base for an insurance agency acquired in 2014 and the wealth management business acquired as part of the DCB acquisition in
2017. These amounts are amortized over their expected lives using expected cash flows based on retention of the customer
base. The customer list intangible has a remaining amortization period of 8.7 years and a weighted average amortization period
of 6.8 years. First Commonwealth recognized amortization expense on other intangible assets of $3.4 million, $3.2 million, and
ff
$3.1 million for the years

ended December 31, 2020, 2019 and 2018, respectively.

In addition to customer deposit intangibles and customer list intangibles, First Commonwealth has servicing rights on mortgage
loans as well as certain commercial loans totaling $1.9 million and $1.3 million as of December 31, 2020 and 2019,
respectively. These servicing rights relate to loans sold to third parties on which the Company retains servicing responsibilities.
The Company recognized amortization expense on these servicing assets of $0.3 million and $0.2 million forff
December 31, 2020 and 2019, respectively.

the years ended

90

The following presents the estimated amortization expense of core deposit and customer list intangibles:

2021
2022

2023
2024

2025

Thereafter
Total

Core Deposit
Intangibles

Customer List
Intangible

Total

(dollars in thousands)

$

$

2,753 $
2,343

1,933
1,522

1,112
1,257

193 $
159

127
97

69
68

2,946
2,502

2,060
1,619

1,181
1,325

10,920 $

713 $

11,633

Note 13—Interest-Bearing Deposits

Components of interest-bearing deposits at December 31 were as follows:

ff

2020

2019

Interest-bearing demand deposits

Savings deposits
Time deposits

Total interest-bearing deposits

(dollars in thousands)
250,353

$

254,981

$

4,305,391
562,964

3,896,536
835,851

$

5,118,708

$

4,987,368

Interest-bearing deposits at December 31, 2020 and 2019 include allocations from interest-bearing demand deposit accounts of
$1.2 billion and $1.1 billion, respectively, into savings, which includes money market accounts. These allocations are based on
a formula and
guidelines. Deposits totaling $0.7 million and $0.9 million at December 31, 2020 and 2019, respectively, were reclassified
from deposits to loan dued

were made in 2019 to reduce First Commonwealth’s reserve requirement in compliance with regulatory

to their overdrawn status.

ff

t

Included in time deposits at December 31, 2020 and 2019 were certificates of
more of $93.1 million and $143.9 million, respectively.

ff

deposit in denominations of $250 thousand or

Interest expense related to certificates of deposit in denominations of $250 thousand or greater amounted to $2.0 million in
2020, $3.3 million in 2019 and $1.6 million in 2018.

Included in time deposits at December 31, 2020, were certificates of deposit with the following
thousands):

ff

scheduled maturities (dollars in

$

419,197
88,783

22,997

16,222
15,765

$

562,964

2021
2022

2023

2024
2025 and thereafter

Total

91

Note 14—Short-term Borrowings

Short-term borrowings at December 31 were as follows:

ff

Ending
Balance

2020

Average
Balance

Average
Rate

Ending
Balance

2019

Average
Balance

Average
Rate

Ending
Balance

2018

Average
Balance

Average
Rate

(dollars in thousands)

Federal funds purchased

$

— $

4,147

1.06 % $

— $

8,069

2.53 % $

11,000

$

8,801

Borrowings from FHLB

—

28,252

1.54

136,200

278,930

2.62

565,000

467,594

2.05 %

2.12

Securities sold under
agreements to repurchase

Total

$ 117,373

$ 142,634

117,373

110,235

0.21

0.49

65,653

104,548

$ 201,853

$ 391,547

0.75

2.12

145,823

142,562

$ 721,823

$ 618,957

0.44

1.74

Maximum total at any
month-end

Weighted average rate at
year-end

$ 248,471

$ 670,831

$ 811,026

0.10 %

1.41 %

2.17 %

Interest expense on short-term borrowings for the years ended December 31 is detailed below:

ff

Federal funds purchased
Borrowings from FHLB

Securities sold under agreements to repurchase
Total interest on short-term borrowings

Note 15—Subordinated Debentures

Subordinated debentures outstanding at December 31 are as follows:

2020

2019

2018

(dollars in thousands)

$

$

44
434

226
704

$

$

204
7,313

781
8,298

$

$

180
9,929

632
10,741

Due

Amount

Rate

Amount

Rate

2020

2019

(dollars in thousands)

Owed to:

First Commonwealth Bank

06/01/2028 $

49,314

First Commonwealth Bank

06/01/2033

49,131

4.875% until June 1, 2023,

then LIBOR + 1.845% $

5.50% until June 1, 2028,
then LIBOR + 2.37%

49,222

49,061

4.875% until June 1, 2023,
then LIBOR + 1.845%

5.50% until June 1, 2028,
then LIBOR + 2.37%

First Commonwealth
Capital Trust II

First Commonwealth
Capital Trust III

Total

01/23/2034

30,929

LIBOR + 2.85

30,929

LIBOR + 2.85

04/06/2034

41,238

LIBOR + 2.85

41,238

LIBOR + 2.85

$ 170,612

$ 170,450

ff

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

e of 4.88%. The rate remains fixed until June 1, 2023, then adjust

s on a quarterly basis to

d

ff

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

th an aggregate principal amount of

ff

92

First Commonwealth currently has two trusts, First Commonwealth Capital Trust II and First Commonwealth Capital Trust III,
of which 100% of the common equity is owned by First Commonwealth. The trusts were formed for the purpose of issuing
company obligated mandatorily redeemable capital securities to third-party investors and investing the proceeds fromff
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.

r

Interest on the debentures issued to First Commonwealth Capital Trust III is paid quarterly at a floff ating rate of LIBOR + 2.85%
which is reset quarterly. Subject to regulatory approval, First Commonwealth may redeem the debentures, in whole or in part, at
its option on any interest payment date at a redemption price equal to 100% of the principal amount of the debentures, plus
accruer d and unpaid interest to the date of the redemption. Deferred issuance costs of $630 thousand are being amortized on a
straight-line basis over the term of the securities.

LIBOR + 2.85%,
Interest on the debentures issued to First Commonwealth Capital Trust II is paid quarterly at a floating rate of
which is reset quarterly. Subject to regulatory approval, First Commonwealth may redeem the debentures, in whole or in part, at
its option at a redemption price equal to 100% of the principal amount of the debentures, plus accruedr
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.

ff

Note 16—Other Long-term Debt

Other long-term debt at December 31 follows:

ff

Borrowings from FHLB due:d

2020

2021
2022

2023

2024
2025

Thereafter
Total

2020

2019

Weighted
Average
Contractual
Rate

Amount

Amount

Weighted
Average
Contractual
Rate

(dollars in thousands)

$

$

50,685
712

739

769
799

2,554
56,258

2.32 %
3.85

3.86

3.86
3.86

3.74

$

$

659

50,685
712

739

769

3,353
56,917

3.84 %

2.32
3.85

3.86

3.86

3.77

The weighted average contractual rate reflects the rate due to creditors. There are no purchase accounting adjustments relate
long-term debt in 2020 or 2019. Therefore, the weighted average effective rate of long-term debt is equal to the weighted
average contractual rate of long-term debt.

d

d to

All of First Commonwealth’s Federal Home Loan Bank stock, along with an interest in mortgage loans and residential
mortgage backed securities, has been pledged as collateral with the Federal Home Loan Bank of Pittsburgh.

l securities included in total long-term debt on the Consolidated Statements of Financial Condition are excluded from the

Capita
a
above, but are described in Note 15, “Subordinated Debentures.”

Note 17—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 finff ancial 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 finff ancial instruments and
certain other items at faiff
for the items that fair value measurement is elected. First Commonwealth has elected not to measure any existing financial

r value. The unrealized gains and losses are required to be included in earnings each reporting period

93

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

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

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

Other Investments include FHLB stock whose estimated fair value is based on its par value. Additional information on FHLB
stock is provided in Note 8, “Investment Securities.”

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

During the third quarter of 2020, the company announced the consolidation of 29 branch locations into nearby offices prior to
December 31, 2020. As a result, 17 owned locations were moved to held for sale and are being carried at the lower of cost or
fair value. Four of these locations are carried at fair value, determined by an independent market-based appraisal less estimated
costs to sell, and are classified as Level 2.

Interest rate derivatives are reported at estimated fair value utilizing Level 2 inputs and are included in "Other assets" and
"Other liabilities" in the Consolidated Statements of Financial Condition. These consist of interest rate swaps where there is no
significant deterioration in the counterparties' (loan customers') credit risk since origination of the interest rate swap as well as
interest rate caps, interest rate collars and risk participation agreements. First Commonwealth values its interest rate swap and
cap positions using a yield curve by taking market prices/rates for an appropriate set of instruments. The set of instruments
currently used to determine the U.S. Dollar yield curve includes cash LIBOR rates from overnight to one year, Eurodollar
futures contracts and swap rates from one year to thirty years. These yield curves determine the valuations of interest rate
swaps. Interest rate derivatives are further described in Note 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 2020 and 2019, we have not
realized any losses due to a counterparty's inability to pay any net uncollateralized position.

94

Interest rate derivatives also include interest rate forwards
related interest-rate lock commitments. This includes forward com
derivative financial instruments are based on derivative market data inputs as of the valuation date and the underlying value of
mortgage loans for rate lock commitments.

entered into to hedge residential mortgage loans held for sale and the

mitments to sell mortgage loans. The faiff

r value of these

ff

ff

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

r value of

ff

The estimated faiff
appraisal less estimated costs to sell or an executed sales agreement.

r value for other real estate owned included in Level 2 is determined by either an independent market based

•

assets and liabilities that are derived from other valuation methodologies, including option

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

ff

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

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

For interest rate derivatives included in Level 3, the fair
of default and expected loss given default based on credit quality of the underlying counterparties (loan customers).

value incorporates credit risk by considering such factors as likelihood

ff

In accordance with ASU 2011-4, the folff
Level 3 fair

value measurements.

ff

lowing tablea

provides information related to quantitative inputs and assumptions used in

December 31, 2020

Other Investments

Nonperforming Loans

Fair Value
(dollars in
thousands)

Valuation Technique

Unobservable Inputs

Range / (weighted
average)

$

1,670

Carrying Value

N/A

798 (a)

Gas Reserve study

Discount rate

N/A

10.00%

Gas per MMBTU

$1.46 - $1.48 (b)

Oil per BBL/d

$36 - $36 (b)

Limited Partnership Investments

6,619

Par Value

N/A

N/A

N/A

N/A

10.00%

December 31, 2019

Other Investments

Nonperforming Loans

1,670

Carrying Value

884 (a)

Gas Reserve study

Discount rate

Limited Partnership Investments

5,795

Par Value

N/A

N/A

2,239 (a) Discounted Cash Flow

Discount Rate

3.84% - 9.50%

Gas per MMBTU

$2.61 - $3.49 (b)

Oil per BBL/d

$47.09 - $53.14 (b)

(a)

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

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

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

r value measurement. Other unobservable inputs in the fair value measurement of nonperforming loans relate to

r value of the loans, while a decrease in this rate would result

r value of the loans, while

r value measurement.

95

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis at December 31:

2020

Level 1

Level 2

Level 3

Total

(dollars in thousands)

Obligations of U.S. Government Agencies:

Mortgage-Backed Securities—Residential

$

— $

7,230

$

— $

Mortgage-Backed Securities—Commercial

Obligations of U.S. Government-Sponsored Enterprises:

Mortgage-Backed Securities—Residential
Other Government-Sponsored Enterprises

Obligations of States and Political Subdivisions
Corporate Securities

Total Securities Available for Sa

ff

le

Other Investments
Loans Held for Sale

Premises and Equipment
Other Assets (a)

Total Assets

Other Liabilities (a)

Total Liabilities

—

—
—

—
—

—

—
—

—
—

191,180

496,033
100,998

11,397
24,385

831,223

10,557
33,436

442
54,362

$
$

$

— $
— $

— $

930,020
61,308

61,308

$
$

$

—

—
—

—
—

—

1,670
—

—
6,619

8,289

$
— $

— $

7,230

191,180

496,033
100,998

11,397
24,385

831,223

12,227
33,436

442
60,981

938,309
61,308

61,308

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

Obligations of U.S. Government Agencies:

Mortgage-Backed Securities—Residential
Mortgage-Backed Securities—Commercial

Obligations of U.S. Government-Sponsored Enterprises:

Mortgage-Backed Securities—Residential
Other Government-Sponsored Enterprises
Obligations of States and Political Subdivisions
Corporate Securities

Total Securities Available for Sa

ff

le

Other Investments
Loans Held for Sale
Other Assets (a)

Total Assets

Other Liabilities (a)

Total Liabilities

2019

Level 1

Level 2

Level 3

Total

(dollars in thousands)

$

$
$
$

— $
—

—
—
—
—
—
—
—
—
— $
— $
— $

8,341
189,133

$

— $
—

8,341
189,133

661,947
1,000
17,909
23,962
902,292
15,091
15,989
21,894
955,266
21,469
21,469

$
$
$

—
—
—
—
—
1,670
—
5,795
7,465

$
— $
— $

661,947
1,000
17,909
23,962
902,292
16,761
15,989
27,689
962,731
21,469
21,469

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

96

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows forff
ended December 31, 2020:

the year

Balance, beginning of year
Total gains or losses

Included in earnings
Included in other comprehensive income

Purchases, issuances, sales, and settlements

Purchases

Issuances
Sales

Settlements

Transfers from Level 3
Transfers into Level 3

Balance, end of year

Other Investments

Other Assets

Total

(dollars in thousands)

$

1,670

$

5,795

$

7,465

—
—

—

—
—

—

—
—

824

—
—

—

—
—
1,670

$

—
—
6,619

$

$

—
—

824

—
—

—

—
—
8,289

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, 2020.

During the year ended December 31, 2020, there were no transfers between faiff

r value Levels 1, 2 or 3.

The changes in Level 3 assets and liabilities measured at faiff
ended December 31, 2019:

r value on a recurring basis are summarized as follows for the year

Balance, beginning of year

Total gains or losses

Included in earnings
Included in other comprehensive income

Purchases, issuances, sales, and settlements

Purchases

Issuances
Sales

Settlements

Transfers from Level 3

Transfers into Level 3
Balance, end of year

Other Investments

Other Assets

Total

$

1,670

(dollars in thousands)
2,696
$

$

—
—

—

—
—

—
—

198
—

2,956

—
—

(55)
—

$

—
1,670

$

—
5,795

$

4,366

198
—

2,956

—
—

(55)
—

—
7,465

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, 2019.

During the year ended December 31, 2019, there were no transfers between faiff

r value Levels 1, 2 or 3.

97

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:

Nonperforming loans
Other real estate owned

Total Assets

Nonperforming loans
Other real estate owned

Total Assets

2020

Level 1

Level 2

Level 3

Total

(dollars in thousands)

$

$

$

$

— $
—

— $

35,543
1,319

36,862

$

$

13,604
—

13,604

2019

Level 1

Level 2

Level 3

(dollars in thousands)

— $
—

— $

12,267
2,608

14,875

$

$

17,518
—

17,518

$

$

$

$

49,147
1,319

50,466

Total

29,785
2,608

32,393

$

$

$

$

Total
Gains
(Losses)

(7,905)
(30)

(7,935)

Total
Gains
(Losses)

(2,667)
(196)

(2,863)

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

u

r value for other real estate owned, determined by either an independent market based appraisal less estimated costs to

The faiff
sell or an executed sales agreement, is classified as Level 2. The fair value for other real estate owned determined using an
internal valuation is classified as Level 3. Other real estate owned has a current carrying value of $1.2 million as of December
31, 2020 and consisted primarily of commercial real estate properties in Pennsylvania. We review whether events and
circumstances subsequent to a transfer to other real estate owned have occurred that indicate the balance of those assets may not
be recoverable. If events and circumstances indicate furthe
value of the assets exceed their faiff
circumstances.

r impairment, we will record a charge to the extent that the carrying
e in the

r values, less estimated costs to sell, as determined by valuation techniques appropriat

a

ff

Certain other assets and liabilities, including goodwill, core deposit intangibles and customer list intangibles are measured at
fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to
fair value adjustments only in certain circumstances. Additional information related to this measurement is provided in Note 12
“Goodwill and Other Amortizing Intangible Assets.” There were no other assets or liabilities
nonrecurring basis durd ing 2020.

measured at faiff

r value on a

a

FASB ASC Topic 825-10, “Transition Related to FSP FAS 107-1” and APB 28-1, “Interim Disclosures about Fai
Financial Instruments,” requires disclosure of the fair value of financial assets and finff ancial liabilities, including those financial
assets and financial liabilities that
methodologies forff
recurring or nonrecurring basis are as discussed above. The methodologies for othe
discussed below.

are not measured and reported at fair value on a recurring basis or nonrecurring basis. The

r value of financial assets and finff ancial liabilities that are measured at faiff

r finff ancial assets and financial liabilities are

estimating the faiff

r value on a

r Value of

a

a

ff

Cash and due from banks and interest bearing bank deposits
bearing bank deposits approximate the estimated fair values of such assets.

g

p

: The carrying amounts for cash and due from banks and

d

interest-

Securities: Fair values forff
quoted market prices are not available, faiff
value of other investments, which includes FHLB stock, is considered a reasonable estimate of fair value.

available for sale and held to maturity securities are based on quoted market prices, if available. If

r values are based on quoted market prices of comparable instruments. The carrying

Loans held for sale

ff

: The estimated faiff

r value of loans held for sale is based on market bids obtained from potential buyers.

98

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.

Off-balance sheet instruments: Many of First Commonwealth’s off-balance sheet instruments, primarily loan commitments and
standby letters of credit, are expected to expire without being drawn upon; therefore, the commitment amounts do not
necessarily represent future cash requirements. FASB ASC Topic 460, “Guarantees,” clarified that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The
carrying amount and estimated fair value for standby letters of credit was $0.1 million at both December 31, 2020 and 2019.
See Note 10, “Commitments and Letters of Credit,” for additional information.

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

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

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

99

The following table presents carrying amounts and estimated fair
December 31:

ff

values of First Commonwealth’s financial instruments at

2020

Fair Value Measurements Using:

Carrying
Amount

Total

Level 1

Level 2

Level 3

(dollars in thousands)

$

100,009

$

100,009

$

100,009

$

— $

256,572
831,223

361,844
12,227

33,436
6,761,183

7,438,666
117,373

56,258
170,612

6,385

256,572
831,223

369,851
12,227

33,436
7,202,763

7,440,906
117,037

57,881
165,665

6,385

256,572
—

—
—

—
—

—
—

—
—

—

—
831,223

369,851
10,557

33,436
35,543

7,440,906
117,037

57,881
—

6,385

2019

Fair Value Measurements Using:

—

—
—

—
1,670

—
7,167,220

—
—

—
165,665

—

Carrying
Amount

Total

Level 1

Level 2

Level 3

(dollars in thousands)

$

102,346

$

102,346

$

102,346

$

— $

19,510
902,292

337,123

16,761
15,989
6,189,148

6,677,615
201,853

56,917
170,450

6,815

19,510
902,292

338,718

16,761
15,989
6,393,872

6,677,595
201,151

58,051
171,772

6,815

19,510
—

—

—
—
—

—
—

—
—

—

—
902,292

38,718
3

15,091
5,989
1
12,267

6,677,595
01,151
2

58,051
—

6,815

—

—
—

—

1,670
—
6,381,605

—
—

—
171,772

—

Financial assets

Cash and due from banks

Interest-bearing deposits
Securities available forff

sale

Securities held to maturity
Other investments

Loans held for sale
Loans

Financial liabilities

a

Deposits
Short-term borrowings

Long-term debt
Subordinated debt

Capital lease obligation

Financial assets

Cash and due from banks

Interest-bearing deposits
Securities available forff

sale

Securities held to maturity

Other investments
Loans held for sale
Loans

Financial liabilities

a

Deposits
Short-term borrowings

Long-term debt
Subordinated debt

Capital lease obligation

100

Note 18—Income Taxes

The income tax provision for the years ended December 31 is as follows:

Current tax provision:

Federal

State

Total current tax provision

Deferred tax provision (benefit):

Federal

State

Total deferred tax provision

Total tax provision

2020

2019

2018

(dollars in thousands)

$

21,629

$

22,942

$

329
21,958

(5,070)

(132)
(5,202)

282
23,224

2,284

8
2,292

21,330

298
21,628

3,666

(20)
3,646

$

16,756

$

25,516

$

25,274

The statutory to effective

ff

tax rate reconciliation for the years ended December 31 is as follows:

ff

Tax at statutory rate
Increase (decrease) resulting from:

ff

State income tax, net of federal
benefit
Income from bank owne
ff
insurance
Tax-exempt interest income, net

d life

Tax credits

Enactment of federal tax reform
Other

ff

2020

2019

2018

Amount

% of
Pretax
Income

Amount

% of
Pretax
Income

(dollars in thousands)

Amount

% of
Pretax
Income

$

18,943

21 % $

27,478

21 % $

27,882

21 %

155

(1,376)
(1,117)

(44)

—
195

—

(1)
(1)

—

—
—

229

(1,260)
(1,298)

(7)

—
374

—

(1)
(1)

—

—
—

220

(1,404)
(1,473)

(5)

(346)
400

—

(1)
(1)

—

—
—

Total tax provision

$

16,756

19 % $

25,516

19 % $

25,274

19 %

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 21% due to benefits resulting fromff
associated with low-income housing tax credits. The consistent level of tax benefits that reduce First Commonwealth’s tax rate
below the statutory rate produced an annual effective tax rate of 19% for each of the years ended December 31, 2020, 2019 and
2018.

tax-exempt interest, income from bank owne

ff nsurance, and tax benefits

d life i

ff

On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act
reduced the corporate federal tax rate from 35% to 21% effective January 1, 2018. As
ff
through income tax expense, our deferred tax assets and liabilities using the
recovered or settled.

enacted rate at which we expected them to be

a result, we are required to re-measure,

a

Also on December 22, 2017, the U.S. Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No.
118 (“SAB 118”) to address any uncertainty or diversity of views in practice in accounting for the income tax effects of the Act
in situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to
complete this accounting in the reporting period that includes the enactment date. SAB 118 allowed for a measurement period
not to extend beyond one year from the Act’s enactment date to complete the necessary accounting.

In accordance with SAB 118, the accounting for the income tax effects of the Act has been completed as of the year ended
December 31, 2018. The completion of the accounting resulted in an immaterial change to the previously recorded re-
measurement.

101

The tax effects of temporary differences between the financia
l 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:

ff

Deferred tax assets:
ty
Lease liabili

a

Allowance for credit losses
Postretirement benefits other than pensions

Alternative minimum tax credit carryforward
Net operating loss carryforward

Deferred compensation

Accrued interest on nonaccrual loans
Accrued incentives

Unfunded loan commitments & other reserves
Other

Total deferred tax assets

Deferred tax liabilities:

Loan origination fees and costs
Right of use asset

Unrealized gain on securities available for sale
Depreciation of assets

Section 197 intangibles

Other

Total deferred tax liabilities

Net deferred tax asset

2020

2019

(dollars in thousands)

$

9,928

$

21,483
242

—
385

1,723
644

2,182

1,576
1,831

11,203

10,937
275

216
2,017

1,720
710

2,185

964
1,032

39,994

31,259

(1,280)
(9,037) $

$

(4,629)
(2,103)

(540)

(424)
(18,013)

$

21,981

$

(626)
(10,302)

(1,386)
(1,470)

(45)

(568)
(14,397)

16,862

an annual limitation under
The Company has approximately $1.5 million of federal net operating losses which are subject to
IRC Section 382. The net operating losses expire in 2034 and the Company expects to utilize the losses prior to expiration.

b

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. Based on our evaluation, as of December 31, 2020, 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 future taxable income.

In accordance with FASB ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes,” the Company has no material
unrecognized tax benefits or accrued interest and penalties as of December 31, 2020. We do not expect the total amount of
unrecognized tax benefits to significantly increase in the next twelve months. The Company records interest and penalties on
unrecognized tax benefits as a component of noninterest expense.

First Commonwealth is subject to routine audits of our tax returns by
in which we conduct business. Generally, tax years prior to the year ended December 31, 2017 are no longer open to
examination by federal and state taxing authorities.

the Internal Revenue Service (“IRS”) as well as all states

t

Note 19—Retirement Plans

First Commonwealth has a savings plan pursuant to the provisions of section 401(k) of the Internal Revenue code. Effective
January 1, 2013, a participating employee can receive a maximum matching contribution of 6% of their compensation. In
addition, each participating employee may contribute up to 80% of their eligible compensation to the plan. The 401(k) plan
expense was $3.9 million in 2020, $3.6 million in 2019, and $3.2 million in 2018.

ff

d Compensation Plan (“NQDC Plan”) to provide deferred
First Commonwealth maintains a Non-Qualified Deferre
compensation for those employees who are in the top 7% of full-time employees, as determined on the basis of base

ff

102

compensation. The NQDC Plan provides participants whose maximum retirement contribution is limited by IRS rules to defer
additional compensation.

Participants in the NQDC Plan are eligible to defer (on a pre-tax basis) from 1% to 25% of their eligible Plan compensation.
Participants are also eligible to defer all or a portion of the Annual Incentive Plan (on a pre-tax basis) from 10% to 100% of
their annual cash incentive earned. There was no NQDC Plan expense in 2020, 2019 and 2018.

Select employees from former
insurance coverage. The measurement date for these plans wa

ff

ff

s December 31.

acquisitions were covered by postretirement benefit plans which provide medical and life

Postretirement Benefits Other than Pensions from Prior Acquisitions

Net periodic benefit cost of these plans for the years ended December 31, was as follows:

ff

Service cost

Interest cost on projected benefit obligation
Amortization of transition obligation

Gain amortization

Net periodic benefit cost

The following tabl

ff

e sets fort

ff

h the change in the benefit obligation and plan

ff

2020

2019

2018

(dollars in thousands)

— $

— $

23
—

(52)
(29) $

34
—

(60)
(26) $

$

$

assets as of December 31:

2020

2019

(dollars in thousands)

$

Change in Benefit Obligation

Benefit obligation at beginning of year
Service cost

Interest cost
Amendments

Actuarial gain
Net benefits paid

Benefit obligation at end of year

Change in Plan Assets

Fair value of plan assets at beginning of year

n assets

Actual return on pla
t
Employer contributions
Net benefits paid

Fair value of plan assets at end of year

Funded Status at End of Year

Unrecognized prior service cost

Unrecognized net gain

Amounts recognized in retained earnings

$

$

834
—

23
537

102
(124)

1,372

—

—
124
(124)
—

1,372
(537)

308
1,143

As of December 31, the funde

ff

d status of the plan is:

—

38
—

(35)
3

883
—

34
—

61
(144)

834

—

—
144
(144)
—

834
—

463
1,297

$

Amounts Recognized in the Statement of Financial Condition as Other liabilities

$

1,372

$

834

2020

2019

(dollars in thousands)

103

The following table sets forth the amounts recognized in accumulated
recognized as components of net periodic benefit costs as of December 31:

ff

other comprehensive income that have not yet been

Amounts recognized in accumulated other comprehensive income, net of
tax:

Net (gain) loss
Prior service cost

Total

2020

2019

2018

(dollars in thousands)

$

$

(243) $
424

181

$

(366) $
—

(366) $

(461)
—

(461)

Weighted-average assumptions used to determine the benefit obligation as of December 31 are as follows:

ff

Weighted-Average Assumptions

Discount rate
Health care cost trend: Initial

Health care cost trend: Ultimate
Year ultimate reached

2020

2019

2018

1.83 %
5.95 %

4.75 %
2026

2.88 %
5.55 %

4.75 %
2025

4.11 %
6.00 %

4.75 %
2024

Weighted-average assumptions used to determine the net benefit costs as of December 31 are as follows:

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

2020

2019

2018

2.88 %

5.55 %
4.75 %

2025
10.00 %

10.9

4.11 %

6.00 %
4.75 %

2024
10.00 %

12.1

3.37 %

6.00 %
4.75 %

2023
10.00 %

12.1

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) introduced a prescription drug
benefit under Medicare Part D and a federa
drug benefit that is at least actuarially equivalent to Medicare Part D. The postretirement plans of First Commonwealth are
eral subsidy. The preceding
provided through insurance coverage; therefore, First Commonwealth will not receive a direct fedff
measures of the accumulated postretirement benefit cost assume that First Commonwealth will not receive the subsidy due to
the relatively small number of retirees.

l subsidy to sponsors of retiree health care benefit plans that provide a prescription

ff

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:

ff

Effecff

t on postretirement benefit obligation

Effecff

t on total of service and interest cost components

One-Percentage-
Point Increase

One-Percentage-
Point Decrease

(dollars in thousands)

$

$

30

1

(29)

—

104

As of December 31, 2020, the projected benefit payments forff

the next ten years are as follows:

ff

2021
2022

2023
2024

2025
2026 - 2030

Projected Benefit
Payments

(dollars in thousands)
165

$

157

147
136

124
455

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 ac
follows (dollars in thousands):

ff

cumulated other comprehensive income into net periodic cost for 2021 are as

Net gain

Prior service cost

Total

Note 20—Incentive Compensation Plan

Postretirement
Benefits

(dollars in thousands)

$

$

(27)

76
49

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 apprecia
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 2,689,027 shares were still eligible for awards as of December 31, 2020.

tion rights, performance share or unit awards, dividend or dividend

a

105

Restricted Stock

lowing provides detail on the restricted stock awards which were issued and outstanding in 2020, 2019 and 2018 in

value of the restricted stock awards is equal to the price of First

The folff
order to retain and attract key employees. The grant date fair
Commonwealth’s common stock on grant date.

ff

Grant Date

February 20, 2020
February 21, 2019
February 21, 2019
November 26, 2018
May 29, 2018
March 26, 2018
February 26, 2018
March 24, 2017
March 24, 2017
December 19, 2016
September 30, 2016
September 19, 2016
June 7, 2016
March 1, 2016
March 1, 2016
June 26, 2015
February 5, 2015

Shares issued

Grant Price

Vesting Date

Number of
Equal Vesting
Periods

95,300 $
63,000
15,000
2,000
3,000
2,000
77,500
5,000
7,000
15,000
10,000
33,000
10,000
10,000
5,000
1,000
50,000

1

13.72 February 20, 2023
14.22 February 22, 2022
14.22 February 22, 2022
13.82 November 26, 2021
15.44 May 29, 202
14.08 March 26, 2021
14.49 February 26, 2021
12.99 March 24, 2020
12.99 March 24, 2020
13.96 December 19, 2019
10.09 September 30, 201
9
10.02 September 19, 2019
9.34 June 7, 2019
8.84 March 1, 2019
8.84 March 1, 2019
9.84 June 26, 2018
8.55 February 5, 2018

1
1
1
1
1
1
1
1
1
3
1
3
1
1
1
1
1

Compensation expense related to restricted stock was $2.9 million, $2.7 million and $2.6 million in 2020, 2019 and 2018,
respectively. As of December 31, 2020, there was $3.2 million of unrecognized compensation cost related to unvested restricted
stock awards granted.

A summary of t
rr
changes forff

the years ended on those dates is presented below:

he status of First Commonwealth’s unvested service-based restricted stock awards as of December 31 and

Outstanding, beginning of the year
Granted
Vested
Forfeited

Outstanding, end of the year

2020

2019

2018

$

Weighted
Average
Grant Date
Fair Value
14.27
13.72
—
13.85
14.13

Shares
171,500
95,300
(12,000)
(4,000)
250,800

$

Weighted
Average
Grant Date
Fair Value
13.05
14.22
10.09
14.40
14.27

Shares
137,500
78,000
(41,000)
(3,000)
171,500

$

Weighted
Average
Grant Date
Fair Value
9.99
14.50
9.37
9.34
13.05

Shares
117,000
84,500
(54,000)
(10,000)
137,500

ff

The following provides detail on restricted stock
2019 and 2018. These plans were previously approve

a

d by the Board of Directors.

awards estimated to be granted on a performance award basis during 2020,

d

Grant Date
December 30, 2015
February 18, 2016
February 23, 2017
February 22, 2018
February 21, 2019
February 20, 2020

Target
Share
Award
60,000
160,650
93,500
102,000
121,900
188,700

Performance
Period
(years)
5
3
3
3
3
3

Award if
threshold
met

Award if
targets are
met

Award if
superior
met

Award if
threshold not
achieved

40 %
40 %
40 %
40 %
40 %

100 %
100 %
100 %
100 %
100 %

200 %
200 %
200 %
200 %
200 %

— %
— %
— %
— %
— %

Vesting After
Performance
Period (years)
0
0
0
0
0
0

Final vesting
December 31, 2020
December 31, 2018
December 31, 2019
December 31, 2020
December 31, 2021
December 31, 2022

106

The following table summarizes the estimated unvested target share awards for the Plans as

ff

of December 31:

Outstanding, beginning of the year
Granted
Issued
Forfeited

Outstanding, end of the year

2020

2019

2018

442,832
188,700
(134,452)
—
497,080

496,603
134,929
(188,700)
—
442,832

525,045
130,995
(149,480)
(9,957)
496,603

The December 30, 2015 grant has a fair value of $9.18 based the closing stock price when the shares were granted. Based on a
Monte Carlo simulation, the February 23, 2017 grant has a faiff
r value of $13.29 per share for 75% of the grant and $15.09 per
share for 25% of the grant, the February 22, 2018 grant has a fair value of $14.17 for 50% of the grant, $13.25 for 25% of the
grant and $15.83 for the remaining 25% of the grant, the February 21, 2019 grant has a fair value of $14.22 for 50% of the
grant, $16.62 for 25% of the grant and $13.07 for the remaining 25% of the grant and the February 20, 2020 grant has a fair
value of $13.72 for 50% of the grant, $15.37 for 25% of the grant and $12.43 for the remaining 25% of the grant.

Note 21—Contingent Liabilities

g

p

g
Legal proceedings
First Commonwealth and its subsidiaries are subject in the normal course of business to various pending and threatened legal
proceedings in which claims for monetary damages are asserted. As of December 31, 2020, management, after consultation
with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against
First Commonwealth or its subsidiaries will be material to First Commonwealth’s consolidated financial position. On at least a
quarterly basis, First Commonwealth assesses its liabilities and contingencies in connection with such legal proceedings. For
those matters where it is probable that First Commonwealth will incur losses and the amounts of the losses can be reasonably
estimated, First Commonwealth records an expense and corresponding liability in its consolidated financial statements.
To the
the amount of such excess is not
extent the pending or threatened litigation could result in exposure in excess of that liability,
currently estimable. Although not considered probable, the range of reasonably possible losses for suc
h matters in the
aggregate, beyond the existing recorded liability (if any), is between $0 and $1 million. Although First Commonwealth does not
believe that the outcome of pending litigation will be material to First Commonwealth’s consolidated finff ancial position, it
cannot rule out the possibility that such outcomes will be material to the consolidated results of operations and cash flows for a
particular reporting period in the future.

a

ff

ff

ff

ff

in an action that commenced on October 14, 2020 in the Court of Common

First Commonwealth Bank was named a defendant
Pleas of Allegheny County, Pennsylvania. The plaintiffs allege that the Bank violated the Pennsylvania Commercial Code by
failing to provide accurate and complete notices of repossession and post-sale notices to certain Pennsylvania customers whose
motor vehicles were repossessed and later sold at public sales. Plaintiffs seek to pursue the action as a statewide class action on
behalf of themselves and other allegedly similarly situated defaulting borrowers who had their motor vehicles repossessed and
seeks to recover statutory damages. The Bank intends to vigorously defendff
class certification. The plaintiffs hff
case any possible loss cannot be reasonably estimated at this time and is not included in the range set fort
paragraph.

ave not made any formal or specific finff ancial demand and due to the preliminary status of this

against the plaintiffs’ claim

s and any request for

h in the preceding

ff

ff

Note 22—Revenue Recognition

ff

On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all
subsequent ASUs that modified Topic 606. The standard’s core principle is that a company will recognize revenue when it
transfers promised goods or
be entitled in exchange for those goods or services. In doing so, First Commonwealth will generally be required to use more
e obligations in the
judgment and make more estimates than under current guidance. These may include identifying performanc
contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price
to each separate performanc

s the consideration to which the company expects to

services to customers in an amount that reflect

e obligation.

ff

ff

ff

The Compam ny adopted ASC 606 using the modified retrospective method applied to all contracts not completed as of January 1,
2018. Results for reporting periods beginning after Januar
y 1, 2018 are presented under Topic 606, while prior period amounts
were not adjusted and co
ntinue to be reported in accordance with our historic accounting under Topic 605. The implementation
of the new standard did not have a material impact on the measurement or recognition of revenue, therefore a cumulative effect
adjustment to opening retained earnings was not necessary.

d

ff

107

In connection with the adoption of Topic 606, First Commonwealth is required to capitalize, and subsequently amortize into
expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The
incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would
not have incurred if the contract had not been obtained, for example, sales commission. The Company utilizes the practical
expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from
capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not
capitalize any contract acquisition cost.

The Company also evaluated whether it has any significant contract balances. A contract asset balance occurs when an entity
performs a service for a customer before the customer pays consideration resulting in a contract receivable or before payment is
due resulting in a contract asset. A contract liability balance is an entity’s obligation to transfer a service to a customer for
which the Company has already received payment from the customer. First Commonwealth’s noninterest revenue streams are
largely based on transactional activity, or standard month-end revenue accruals such as trust income which is based on month-
end market values. Consideration is often received immediately or shortly after the Company satisfies its performance
obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers,
and therefore, does not experience significant contract balances. As of December 31, 2020 and 2019, the Company did not have
any significant contract balances.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In
addition, certain noninterest income streams such as fees associated with derivatives are not in scope of the new guidance.
Topic 606 is applicable to noninterest revenue streams such as trust income, service charges on deposits, insurance and retail
brokerage commissions, card related interchange income and gain (loss) on sale of OREO. The recognition of these revenue
streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from
contracts with customers.

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

Trust Income

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

Service Charges on Deposit Accounts

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

Insurance and Retail Brokerage Commissions

Insurance income primarily consists of commissions received from execution of personal, business and health insurance
policies when acting as an agent on behalf of insurance carriers. The Company’s performance obligation is generally satisfied
upon the issuance of the insurance policy. Because the Company’s contracts with the insurance carriers are generally
cancellable by either party, with minimal notice, insurance commissions are recognized during the policy period as received.
Also, the majority of insurance commissions are received on a monthly basis during the policy period, however some carriers
pay the full annual commission to First Commonwealth at the time of policy issuance or renewal. In these cases, First
Commonwealth would be required to refund any commissions it would not be entitled to as a result of cancelled or terminated
policies. The Company has established a refund liability for the remaining term of the policies expected to be cancelled. The
Company also receives incentive-based contingency fees from the insurance carriers. Contingency fee revenue, which totals
approximately $0.5 million per year, is recognized as received due to the immaterial amount.

108

Retail brokerage income primarily consists of commissions received on annuity and investment product sales through a third-
party service provider. The Company’s performance obligation is generally satisfied upon the issuance of the annuity policy or
the execution of an investment transaction. The Company does not earn a significant amount of trailer fees on annuity sales.
However, after considering the factors impacting these trailer fees, such as the uncertainty of investor behavior and changes in
the market value of assets, First Commonwealth determined that it would recognize trailing fees as received because it could
not reasonably estimate an amount of futff ure trailin
party service provider are received on a monthly basis based upon customer activity for the month. The fees are recog
monthly with a receivable until commissions are received from the third-party service provider the followin
g month. Because
the Company acts as an agent in arranging the relationship between the customer and the third-party service provider and does
not control the services rendered to the customers, retail brokerage fees are presented net of related costs, including $3.0 million
in commission expense as of December 31, 2020 and 2019.

probable. Commissions from the third-

g commissions for which collection is

nized

ff

ff

ff

ff

ff

ff

t

Card Related Interchange Income

Card related interchange income is primarily comprised of debit and credit card income, ATM fees and merchan
income. Debit and credit card income is primarily comprised of interchange fees earned whenever th
credit cards are processed through card payment networks such as Mastercard. ATM fees are primarily generated when a
Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services
income mainly represents fees charge
d to merchants to process their debit and credit card transactions, in addition to account
management fees. Card related interchange income is recognized at the point in time as the customer transactions are settled.

e Company’s debit and

t services

ff

ff

ff

Other Income

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

Gains(losses) on sales of OREO

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

s the transaction price and related gain(loss) on sale if a significant

transfer of control of the property to the buyer. In determining the

d

ff

The following present
ended December 31:

s noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606 for the year

Noninterest Income

In-scope of Topic 606:
Trust income
Service charges on deposit accounts
Insurance and retail brokerage commissions
Card-related interchange income
Gain on sale of other loans and assets
Other income
Noninterest Income (in-scope of Topic 606)
Noninterest Income (out-of-scope of Topic 606)

Total Noninterest Income

2020

2019

2018

(dollars in thousands)

$

$

9,101
16,387
7,850
23,966
967
3,675
61,946
32,530
94,476

$

$

8,321
18,926
7,583
21,677
1,062
3,837
61,406
24,079
85,485

$

$

7,901
18,175
7,426
20,187
982
3,708
58,379
30,258
88,637

109

Note 23—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
comparable transactions. In the opinion of
same terms, such as collateral and interest rates, as those prevailing at the time forff
management, these transactions do not involve more than the normal risk of collectability nor do they present other unfavorable
features. It is anticipated that similar transactions will be entered into in the future.

The following is

ff

an analysis of loans to related parties (dollars in thousands):

December 31, 2019
Advances
Repayments
December 31, 2020

$

$

19,246
4,258
(3,931)
19,573

Note 24—Regulatory Restrictions and Capital Adequacy

The amount of funds available to the parent from its subsidiary bank is limited by restrictions imposed on all depository
institutions by banking regulation that restricts and limits the payment of dividends and the ability of depository institutions to
engage in transactions, including lending transactions and asset purchases, with affilff

iates.

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

l amounts and classification are also subject to qualitative

l guidelines that involve quantitative measures of First

judgments by the regulators about

a

a

a

a

ff

Effective January 1,
banking agencies implementing Basel III. The capital rules require First Commonwealth
a
capita

2015, First Commonwealth became subject to regulatory risk-based capital rules

l levels:

rr

r

adopted by the federal

to maintain the following minimum

ff

•

•

•

•

a minimum Tier I capital to risk-weighted assets of at least 6.0%, plus a capital conservation buffer of 2.5%, resulting
in a required minimum ratio of 8.5%

a minimum Common Equity Tier 1 to risk weighted assets of at lest 4.5%, plus the capita
resulting in a required minimum ratio of 7%.

a

l conservation buffer of 2.5%,

a minimum Total Capital to risk weighted assets of at least 8.0%, plus the 2.5% capita
in a required minimum of 10.5%

a

l conservation buffer, resulting

a minimum Leverage ratio, which is Tier 1 capital to adjusted average assets, of 4.0%

The capital conservation buffer may only include capital that qualifies as Common Equity Tier 1.

The Basel III Rules also permit banking organizations with less than $15.0 billion in assets to retain, through a one-time
election, the exclusion of accumulated other comprehensive income from regulatory capital.
treatment, which reduced

s the volatility of regulatory capita

The Company elected to retain this

l levels.

a

a

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

l ratio by 160 basis points.

a

As of December 31, 2020 and 2019, First Commonwealth and First Commonwealth Bank met all capital adequacy
requirements to which they are subject and were considered well-capitalized under the regulatory rules as set forth in the tables
below:

110

As of December 31, 2020

Total Capa ital to Risk Weighted Assets

First Commonwealth Financial Corpr oration
First Commonwealth Bank

Tier I Capa ital to Risk Weighted Assets

First Commonwealth Financial Corpr oration
First Commonwealth Bank
Tier I Capa ital to Average Assets

First Commonwealth Financial Corpr oration
First Commonwealth Bank

Common Equity Tier I to Risk Weighted Assets
First Commonwealth Financial Corpr oration
First Commonwealth Bank

Actual

Minimum Capital
Required

Required to be
Considered Well
Capitalized

Capital
Amount

Ratio

Capital
Amount

Ratio

Capital
Amount

Ratio

(dollars in thousands)

$ 1,010,608
974,911

14.88 % $713,289
712,995
14.36

10.50 % $679,323
679,043
10.50

10.00 %
10.00

$

$

$

827,231
791,568

12.18 % $577,424
577,186
11.66

8.50 % $543,458
543,234
8.50

827,231
791,568

9.40 % $352,023
351,244
9.01

4.00 % $440,029
439,055
4.00

757,231
791,568

11.15 % $475,526
475,330
11.66

7.00 % $441,560
441,378
7.00

8.00 %
8.00

5.00 %
5.00

6.50 %
6.50

Actual

Minimum Capital
Required

Required to be
Considered Well
Capitalized

Capital
Amount

Ratio

Capital
Amount

Ratio

Capital
Amount

Ratio

(dollars in thousands)

As of December 31, 2019

Total Capital to Risk Weighted Assets

First Commonwealth Financial Corporation

$9

54,991

14.26

% $703,370

10.50 % $669,877

10.00 %

First Commonwealth Bank

913,863

13.67

702,006

10.50

668,577

10.00

Tier I Capital to Risk Weighted Assets

First Commonwealth Financial Corporation

$800,526

11.95 % $569,395

8.50 % $535,901

8.00 %

First Commonwealth Bank
Tier I Capital to Average Assets

759,3

98

11.36

568,291

8.50

534,862

8.00

First Commonwealth Financial Corporation
First Commonwealth Bank

$8

00,526
759,398

10.17
9.66

% $314,963
314,338

4.00 % $393,704
392,922
4.00

5.00 %
5.00

Common Equity Tier I to Risk Weighted Assets
First Commonwealth Financial Corporation

$730,526

10.91 % $468,914

7.00 % $435,420

6.50 %

First Commonwealth Bank

759,3

98

11.36

468,004

7.00

434,575

6.50

Note 25—Capital

At December 31, 2020, shareholders’ equity wt
increase was primarily the result of $73.4 million in net income, $1.8 million in treasury stock sales and an increase of
$11.7 million in the fair value of available forff
dividends paid to shareholders, $20.9 million of common stock repurchases and an $11.2 million charge related to the adoption
of CECL. Cash dividends declared per common share were $0.44 and $0.40 for the years ended December 31, 2020 and 2019,
respectively.

sale investments. These increases were partially offset by $43.0 million of

as $1.1 billion, an increase of $13.0 million from Decembe

r 31, 2019. The

ff

a

l management, First Commonwealth's Board of Directors will periodically authorize stock

As part of the Company's capita
repurchase plans. In 2018, First Commonwealth announced a $25.0 million common stock repurchase program. This program
was completed prior to the end of 2018 and resulted in a total of 1,843,373 shares repurchased at an average price of $13.58.
On March 4, 2019, a share repurchase program was authorized forff
stock. This program completed prior to December 31, 2020, and resulted in the repurchase of 2,761,504 shares at an average
price of $9.07. In January 2021, the Board of Directors authorized a new $25.0 million share repurchase program of the
Company's common stock. First Commonwealth may suspend or discontinue the program at any time.

up to $25.0 million in shares of the Company's common

111

Note 26—Condensed Financial Information of First Commonwealth Financial Corporation (parent company only)

Statements of Financial Condition

Assets

Cash

Loans
Investment in subsidiaries

Investment in unconsolidated subsidiary t
Investment in jointly-owned company

rr

rusts

Premises and equipment, net
Receivable fr
a
Dividends receivable from subsidiaries

om subsidiaries

Other assets

Total assets

Liabilities and Shareholders’ Equity

Accrued expenses and other liabilities

Subordinated debentures payable
Shareholders’ equity

Total liabilities and shareholders’ equity

Statements of Income

Interest and dividends
Dividends from subsidiaries

Interest expense
Other income

Operating expense

ff
Income before taxes
subsidiaries

and equity in undistributed earnings of

Applicable income tax benefits
ff
Income before equity

in undistributed earnings of subsidiaries

Equity in undistributed earnings of subsidiaries

u

Net income

December 31,

2020

2019

(dollars in thousands)

$

34,427

$

22,889

11
1,108,801

13
1,086,844

2,182
338

3,476
—

3,038

2,190
306

3,801
4,750

5,097

$

$

7,307
1,159,580

18,796

72,167
1,068,617

$

$

6,924
1,132,814

4,983

72,167
1,055,664

$

1,159,580

$

1,132,814

For the years ended December 31,

2020

2019

2018

(dollars in thousands)

8
61,708

(3,229)
3

(4,687)

53,803

1,648
55,451

17,996
73,447

$

$

8
55,964

(3,735)
6

(4,525)

47,718

1,720
49,438

55,895
105,333

$

$

1
81,851

(3,722)
14

(4,047)

74,097

1,324
75,421

32,077
107,498

$

$

112

Statements of Cash Flow

Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:

Depreciation and amortization
Net gains on sales of assets

Decrease (increase) in prepaid income taxes
Undistributed equity in subsidiaries

Distribution from unconsolidated subsidiary
Other net

Net cash provided by operating activities

Investing Activities

Net change in loans

Purchases of premises and equipment
Proceeds from sale of other assets

Investment in subsidiaries

Net cash used in by investing activities

Financing Activities

Dividends paid

Proceeds from reissuance of treasury stock

Purchase of treasury stock

Net cash used in financing activities

Net increase (decrease) in cash
Cash at beginning of year

Cash at end of year

For the years ended December 31,

2020

2019

2018

(dollars in thousands)

$

73,447

$

105,333

$

107,498

383
—

(317)
(17,996)

—
19,705

75,222

1

(20)
—

—
(19)

340
(2)

629
(55,895)

—
(2,957)

47,448

1

(586)
2

—
(583)

320
(7)

37
(32,077)

9,000
(1,628)

83,143

3

(87)
7

(17,202)
(17,279)

(42,982)

(39,394)

(34,849)

222

(20,905)
(63,665)

11,538
22,889

211

(6,259)
(45,442)

1,423
21,466

$

34,427

$

22,889

$

208

(26,189)
(60,830)

5,034
16,432

21,466

Cash dividends declared per common share were $0.44 for 2020, $0.40 in 2019 and $0.35 in 2018.

First Commonwealth Financial Corporation has an unsecured $20.0 million line of credit with another financial institution. As
of December 31, 2020, there are no amounts outstanding on this line and we are in compliance with all debt covenants related
to the line of credit.

ff

Note 27—Subsequent Event

On January 25, 2021, the Board of Directors authorized a new $25.0 million share repurchase program of the Company’s
common stock. Under the new program, management is authorized to repurchase shares through Rule 10b5-1 plans, open
market purchases, privately negotiated transactions, block purchases or otherwise in a manner that is intended to comply with
applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934. First Commonwealth may
suspend or discontinue the program at any time.

113

Quarterly Summary of Financial Data—Unaudited

The unaudited quarterly results of operations for the years ended December 31 are as follows:

2020

Fourth
Quarter

Third
Quarter

Second
Quarter

First
Quarter

(dollars in thousands, except per share data)

$

$

$

73,306
5,814

67,492
7,680

59,812
23
26,599

54,552
31,882

6,199
25,683

0.27
0.27

$

$

$

73,593
7,224

66,369
11,212

55,157
20

26,749

58,247
23,679

4,493
19,186

0.20
0.20

$

$

$

74,981
8,295

66,686
6,859

59,827
8

21,804

52,756
28,883

5,032
23,851

0.24
0.24

79,329
11,605

67,724
30,967

36,757
19

19,254

50,271
5,759

1,032
4,727

0.05
0.05

96,036,774
96,344,398

97,917,096
98,160,143

97,932,333
98,146,854

98,123,627
98,361,494

Fourth
Quarter

Third
Quarter

Second
Quarter

First
Quarter

2019

(dollars in thousands, except per share data)
$

82,575

82,057

$

$

81,038

12,233
68,805

4,895
63,910

7
22,521

53,109
33,329
6,509

26,820
0.27

$
$

14,130
68,445

2,708
65,737

9
22,170

54,897
33,019
6,375

26,644
0.27

$
$

14,931
67,126

2,835
64,291

6
21,900

52,229
33,968
6,688

27,280
0.28

$
$

79,594

14,108
65,486

4,095
61,391

—
18,872

49,730
30,533
5,944

24,589
0.25

0.27
98,182,023

98,508,219

0.27
98,267,229

98,547,898

0.28
98,346,674

98,600,609

0.25
98,479,041

98,706,827

Interest income
Interest expense

Net interest income

Provision for credit losses

Net interest income after provision for credit losses

Net securities gains
Other noninterest income

Other expenses
Income before income taxes

Income tax provision
Net Income

Basic Earnings Per Share
Diluted Earnings Per Share

Average shares outstanding
Average shares outstanding assuming dilution

Interest income

Interest expense

Net interest income

Provision for credit losses

Net interest income after provision for credit losses

Net securities gains (losses)
Other noninterest income

Other expenses
Income before income taxes
Income tax provision

Net Income

Basic Earnings Per Share

Diluted Earnings Per Share
Average shares outstanding

Average shares outstanding assuming dilution

$

$

$

$

$
$

114

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A.

Controls and Procedures

Disclosure 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.

115

MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING

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

presentation of the Consolidated Financial
have

ff

ff

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 and includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
the Company; (2) provide reasonable assurance that transactions are recorded as necessary t
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 reasonablea
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. Under the supervision and with the participation of management,
including First Commonwealth’s principal executive officer and principal finan
evaluation of the effectiveness of internal control over financia
Integrated Frame

work (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

l reporting based on criteria established in Internal Control-

reflect the transactions and dispositions of the assets of

cial officer, First Commonwealth conducted an

o permit preparation of financial

CC

FF

ff

ff

rr

ff

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
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation.

error or fraud may occur without detection. Therefore, even those systems

d

2013)
Based on First Commonwealth’s evaluation based on criteria established in Internal Control-Integrated Frame
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), management concluded that
internal control over financia
internal control over financia
registered public accounting firm, as stated in their attestation report which is included herein.

l reporting was effective as of December 31, 2020. The effectiveness of First Commonwealth’s
l reporting as of December 31, 2020 has been audited by Ernst & Young, LLP, an independent

((
work (rr

ff
ff

FF

First Commonwealth Financial Corporation
Indiana, Pennsylvania

March 1, 2021

/S/ T. Michael Price

T. Michael Price

/S/

James R. Reske
James R. Reske

President and Chief Executive Officer

Executive Vice President, Chief Financial Officer and Treasurer

116

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of First Commonwealth Financial Corporation

Opinion on Internal Control over Financial Reporting

We have audited First Commonwealth Financial Corporation and subsidiaries’ internal control over financial reporting as of
December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, First
Commonwealth Financial Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated statements of financial condition of the Company as of December 31, 2020 and 2019, the related
consolidated statements of income, comprehensive income, changes in stockholder’s equity, and cash flows for each of the two
years in the period ended December 31, 2020, and the related notes and our report dated March 1, 2021 expressed an
unqualified opinion thereon.

Basis for Opinion

The Company’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
Assessment Of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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
respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

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.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania
March 1, 2021

117

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of First Commonwealth Financial Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated statement of financial condition of First Commonwealth Financial
Corporation and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income,
comprehensive income, changes in shareholders' equity, and cash flows for each of the two years in the period ended December
31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at
December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended
December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated March 1, 2021 expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

As discussed in Notes 1 and 9 to the consolidated financial statements, the Company changed its method for accounting for
credit losses in 2020 due to the adoption of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of
Credit Losses on Financial Instruments. As explained below, auditing the Company’s allowance for credit losses (ACL),
including the adoption of the new accounting guidance, was a critical audit matter.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the account or disclosure to which it relates.

118

Description of the
Matter

Allowance for Credit Losses

Effective January 1, 2020, the Company adopted Topic 326, which resulted in an increase to the ACL of
$13.4 million. The Company’s loan portfolio totaled $6.8 billion as of December 31, 2020 and the
associated ACL was $101.3 million. As discussed in Note 1 and 9 to the consolidated financial statements,
the ACL represents management’s estimate of losses over the contractual life of the loan portfolio,
including unfunded commitments. The ACL is calculated by pooling loans of similar risk characteristics
and applying a discounted cash flow methodology after incorporating probability of default and loss given
default estimates. Inputs impacting the expected losses include a forecast of economic factors including
national unemployment, gross domestic product, and housing price index. The ACL also includes
qualitative factors related to loan portfolio risks not reflected in the calculated model, including lending
practices, ability and experience of the credit staff, the overall lending environment and external factors
such as the regulatory environment and competition, as well as the impact of COVID-19.

Auditing management’s ACL estimate and related provision for credit losses was complex due to the
discounted cash flow model and related inputs used to compute the reserve and involves a high degree of
subjectivity due to the judgment required in evaluating management’s determination of the qualitative
factors described above.

How We
Addressed the
Matter in Our
Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of the
Company’s controls over the ACL process, including controls over the appropriateness over the ACL
methodology, the expected loss models, the reliability and accuracy of data used in developing the ACL
estimate, and management’s review and approval process over the forecast, qualitative adjustments and
overall ACL results.

With the assistance of EY specialists, we tested management’s expected loss models including evaluating
the conceptual soundness of model methodology, assessing model performance and governance, testing
key model assumptions, including the reasonable and supportable forecast period, and independently
recalculating model output. We also compared the underlying economic forecast data used to estimate the
quantitative reserve to external sources to determine whether it was complete and accurate.

To test the qualitative factor adjustments, among other procedures, we assessed management’s
methodology and considered whether relevant risks were reflected in the models and whether adjustments
to the model output were appropriate. We tested the completeness, accuracy, and relevance of the
underlying data used to estimate the qualitative adjustments. We evaluated whether qualitative
adjustments were reasonable based on changes in economic conditions and the loan portfolio. For
example, we evaluated the reasonableness of qualitative adjustments for economic trends and conditions
by independently comparing loan portfolio information. We also assessed whether qualitative
adjustments were consistent with publicly available information (e.g. macroeconomic data). Further, we
performed an independent search for the existence of new or contrary information relating to risks
impacting the qualitative factor adjustments to validate that management’s considerations are appropriate.
Additionally, we evaluated whether the overall ACL, inclusive of qualitative factor adjustments,
appropriately reflects losses expected in the loan portfolio by comparing to historical losses and peer bank
data.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2019.
Pittsburgh, Pennsylvania
March 1, 2021

119

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors
First Commonwealth Financial Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of income, comprehensive income, changes in shareholders’
equity, and cash flows of First Commonwealth Financial Corporation and subsidiaries (the Company) for the year ended
December 31, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated
financial statements present fairly, in all material respects, the results of operations of the Company and its cash flows for the
year ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

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 audit. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audit also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a
reasonable basis for our opinion.

We served as the Company’s auditor from 2006 to 2018.

(signed) KPMG LLP

Pittsburgh, Pennsylvania
March 1, 2019

120

ITEM 9B.

Other Information

None.

121

PART III

ITEM 10.

Directors, Executive Officers and Corporate Governance

p

,

ff

on called for by this item concerning the identification, business experience and qualifications of First

Informati
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 23, 2021 (the “Proxy
Statement”), under the heading “Proposal 1—Election of Directors,” and is incorpora

ted herein by reference.

r

ff

on called for by this item concerning First Commonwealth’s compliance with section 16(a) of the Exchange Act will

Informati
be included in the Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Compliance,” and is
incorporated herein

by reference.

rr

First Commonwealth has adopted a code of conduct and ethics that applies to al
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. Refe
of exhibits.

r to Item 15 of this Annual Report on Form 10-K for a list

l employees of the Company, including

a

ff

ff

ff

Informati
on 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

p

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

p

y

g

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 “Stock Ownership of Certain Beneficial Owners” and
“Stock Ownership of Directors and Management,” and is incorporated herein by reference.

The following tabl

ff

e provides information related to our existing equity compensation plans as of December 31, 2020:

Plan Categoryg y

Equity compensation plans approved by security holders
Equity compensation plans not approved by security ht

olders

Total

Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights

434,180
N/A

434,180

Weighted average
exercise price of
outstanding
options, warrants
and rights

Number of
securities
remaining
available for
future issuance
under equity
compensation
plans

N/A
N/A

N/A

2,689,027
N/A

2,689,027

The number of securities to be issued upon
of shares that may be issued pursuant to outstanding performance units.

u

exercise of outstanding option, warrants and rights represent the maximum number

122

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.

123

PART IV
ITEM 15.

Exhibits, Financial Statements and Schedules

,

(A)

Documents Filed as Part of this Report
Financial Statements
(a)

All financial statements of the registrant as set forth unde

ff

r Item 8 of the Report on Form 10-K.

(2) Financial Statement Schedules

Descriptionp

Indebtedness to Related Parties
Guarantees of Securities of Other Issuers

(3)

Exhibits

Page

N/A
N/A

Descriptionp
Amended and Restated Articles of Incorporation of
First Commonwealth Financial Corporation

p

Incorporated by Reference to
y
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

Amended and Restated Non-Qualified Deferff
Compensation Plan (formerly known as the
Supplemental Executive Retirement Plan)

red

Amended and Restated Employment Agreement dated
January 1, 2012 entered into among First
Commonwealth Financial Corporation, First
Commonwealth Bank and T. Michael Price

Exhibit 3.1 to the current report as Form 8-K
filed February 1, 2016

Exhibit 10.1 to the current report on Form 8-
K filedff

December 21, 2017

Exhibit 10.1 to the current report on Form 8-
K filedff

January 5, 2012

Change of Control Agreement dated December 30,
2011 entered into between FCFC and T. Michael Price

Exhibit 10.3 to the current report on Form 8-
K filedff

January 5, 2012

First Commonwealth Financial Corporation Incentive
Compensation Plan

2020 Annual Incentive Plan

2018-2020 Long-Term Incentive Plan

2019-2021 Long-Term Incentive Plan

2020-2022 Long-Term Incentive Plan

Annex I to Proxy Statement filed March 19,
2015 relating to the 2015 Annual Meeting of
Shareholders

Exhibit 10.1 to the quarterly report on
Form 10-Q filed May 8, 2020

Exhibit 10.2 to the quarterly report on Form
10-Q filed May 9, 2018

Exhibit 10.2 to the quarterly report on Form
10-Q filed May 7, 2019

Exhibit 10.2 to the quarterly report on Form
10-Q filed May 8, 2020

Form of Restricted Stock Agreement for service-based
restricted stock

Exhibit 10.3 to the quarterly report on
Form 10-Q filed May 8, 2012

Change of Control Agreement dated December 30,
2011 entered into between FCFC and Leonard V.
Lombardi

Change of Control Agreement dated December 30,
2011 entered into between FCFC and Matthew C.
Tomb

Performance Unit Agreement dated December 30, 2015
between First Commonwealth Financial Corporation
and T. Michael Price

Exhibit 10.13 to the annual report on Form
10-K filed March 5, 2012

Exhibit 10.14 to the annual report on Form
10-K filed March 5, 2012

Exhibit 10.13 to the annual report on Form
10-K filed February 29,

2016

r

Employment Agreement dated April 10, 2014 between
First Commonwealth Financial Corporation and James
R. Reske

Exhibit 10.1 to the current report on Form
8-K filed April 10, 2014

Schedule
Number

I
II

Exhibit
Number
3.1

3.2

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

124

Exhibit
Number

10.14

10.15

10.16

10.17

10.18

10.19

10.20

10.21

21.1

23.1

23.2

31.1

31.2

32.1

32.2

101.00

Description

Incorporated by Reference to

Change of Control Agreement dated April 10, 2014
between First Commonwealth Financial Corporation
and James R. Reske

Change of Control Agreement dated November 14,
2019 entered into between FCFC and Norman J.
Montgomery

Exhibit 10.3 to the current report on Form
8-K filed April 10, 2014

Exhibit 10.1 to current report on Form 8-K
filed November 19, 2019

Change of Control Agreement dated March 1, 2013
entered into between FCFC and Carrie L. Riggle

Exhibit 10.4 to the quarterly report on Form
10-Q filed May 8, 2013

Change of Control Agreement dated May 31, 2013
entered into between FCFC and Jane Grebenc

Exhibit 10.2 to the quarterly report on Form
10-Q filed August 7, 2013

Employment Agreement dated May 31, 2013 entered
into between FCFC and Jane Grebenc

Exhibit 10.1 to the quarterly report on Form
10-Q filed August 7, 2013

Employment Agreement dated September 19, 2016
entered into between FCFC and Brian Karrip

Exhibit 10.1 to the quarterly report on Form
10-Q filed November 9, 2016

Change of Control Agreement dated September 19,
2016 entered into between FCFC and Brian Karrip

Exhibit 10.2 to the quarterly report on Form
10-Q filed November 9, 2016

Restricted Stock Agreement dated September 19, 2016
entered into between FCFC and Brian Karrip

Exhibit 10.3 to the quarterly report on Form
10-Q filed November 9, 2016

Filed herewith

Filed herewith

Filed herewith

Filed herewith

Filed herewith

Filed herewith

Filed herewith

Filed herewith

Subsidiaries of the Registrant

Consent of EY LLP Independent Registered Public
Accounting Firm

Consent of KPMG LLP Independent Registered Public
Accounting Firm

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

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

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

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

The following materials from First Commonwealth
Financial Corporation’s Annual Report on Form 10-K
for the year ended December 31, 2020, formatted in
XBRL (Extensible Business Reporting Language): (i)
the Consolidated Balance Sheets at December 31, 2020
and December 31, 2019, (ii) the Consolidated
Statements of Income for the years ended December
31, 2020, 2019 and 2018, (iii) the Consolidated
Statements of Comprehensive Income for the years
ended December 31, 2020, 2019 and 2018, (iv) the
Consolidated Statements of Changes in Shareholders’
Equity for the years ended December 31, 2020, 2019
and 2018, (v) the Consolidated Statements of Cash
Flows for the years ended December 31, 2020, 2019
and 2018, and (vi) the Notes to Consolidated Financial
Statements.

ITEM 16.

Form 10-K Summary

None.

125

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 dulyd

authorized, in Indiana, Pennsylvania.

SIGNATURES

FIRST COMMONWEALTH FINANCIAL CORPORATION (Registrant)

By:

/S/ T. Michael Price

T. Michael Price
President and Chief Executive Officer

ff

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.

ff

Dated: March 1, 2021

Signature

g

y
Capacity
p

Date

Director

Director

Director

February 26, 2021

February 26, 2021

February 26, 2021

Director, Chairman

February 26, 2021

Director

Director

Executive Vice President and Chief
Revenue Officer

Director

Director

Director

Director

February 26, 2021

February 26, 2021

February 26, 2021

February 26, 2021

February 26, 2021

February 26, 2021

February 26, 2021

President and Chief Executive Officer
(Principal Executive Officer)

March 1, 2021

Executive Vice President, Chief
and Treasurer
Financial Officer,

ff

Director

Director

March 1, 2021

February 26, 2021

February 26, 2021

/S/

Julie A. Caponi

Julie A. Caponi
/S/ Ray T. Charley
Ray T. Charley
/S/ Gary R. Claus
Gary R. Claus
/S/ David S. Dahlmann
David S. Dahlmann

/S/

Johnston A. Glass
Johnston A. Glass

/S/

Jon L. Gorney
Jon L. Gorney

/S/ Jane Grebenc

Jane Grebenc

/S/ David W. Greenfield
David W. Greenfield

/S/ Bart E. Johnson
Bart E. Johnson

/S/ Luke A. Latimer
Luke A. Latimer
/S/ Aradhna M. Oliphant

Aradhna M. Oliphant

/S/ T. Michael Price

T. Michael Price

/S/

James R. Reske
James R. Reske
/S/ Robert J. Ventura
Robert J. Ventura
/S/ Stephen A. Wolfe
Stephen A. Wolfe

126

Exhibit 21.1 Subsidiaries of First Commonwealth Financial Corporation

p

Percent Ownership by Registrant

First Commonwealth Bank
601 Philadelphia Street
Indiana, PA 15701
Incorporated under laws of Pennsylvania

Subsidiaries of First Commonwealth Bank

First Commonwealth Insurance Agency
601 Philadelphia Street
Indiana, PA 15701
Incorporated under laws of Pennsylvania

First Commonwealth Community Development Corporation (Inactive)
654 Philadelphia Street
Indiana, PA 15701
Incorporated under laws of Pennsylvania

First Commonwealth Financial Advisors Incorporated
601 Philadelphia Street
Indiana, PA 15701
Incorporated under laws of Pennsylvania

FraMal Holdings Corporation
1105 N. Market Street, Suite 1300
Wilmington, DE 19801
Incorporated under laws of Delaware

First Commonwealth Capital Trust II
601 Philadelphia Street
Indiana, PA 15701
Incorporated under laws of Pennsylvania

First Commonwealth Capital Trust III
601 Philadelphia Street
Indiana, PA 15701
Incorporated under laws of Pennsylvania

Commonwealth Trust Credit Life Insurance Company
3101 North Central Avenue, Suite 400
Phoenix, AZ 85012
Incorporated under laws of Arizona

100%

100%

100%

100%

100%

100%

100%

50%

Exhibit 23.1 Consent of Independent Registered Public Accounting Firm

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

(1) Registration Statement (Form S-3 No. 333-226681) of First Commonwealth Financial Corporation, and

(2) Registration Statement (Form S-3 No. 333-187288) of First Commonwealth Financial Corporation, and

(3) Registration Statement (Form S-8 No. 333-159090) of First Commonwealth Financial Corporation, and

(4) Registration Statement (Form S-8 No. 333-238312) of First Commonwealth Financial Corporation

of our reports dated March 1, 2021, with respect to the consolidated financial statements of First Commonwealth Financial
Corporation and the effectiveness of internal control over financial reporting of First Commonwealth Financial Corporation
included in this Annual Report (Form 10-K) of First Commonwealth Financial Corporation for the year ended December 31,
2020.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania
March 1, 2021

Exhibit 23.2 Consent of Independent Registered Public Accounting Firm

The Board of Directors
First Commonwealth Financial Corporation:

We consent to the incorporation by reference in the registration statements (No. 333-226681 and No. 333-187288) on Form S-3
and in the registration statements (No. 333-159090 and No. 333-238312) on Form S-8 of First Commonwealth Financial
Corporation of our report dated March 1, 2019, with respect to the consolidated statements of income, comprehensive income,
changes in shareholders’ equity, and cash flows of First Commonwealth Financial Corporation and subsidiaries for the year
ended December 31, 2018, and the related notes, which report appears in the December 31, 2020 annual report on Form 10-K
of First Commonwealth Financial Corporation.

Pittsburgh, Pennsylvania
March 1, 2021

/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.

2.

3.

4.

I have reviewed this annual report on Form 10-K of First Commonwealth Financial Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material facff
t 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;

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;

ff

The registrant's other certifying officer and I are responsible forff
procedures (as defined in Exchange Act RuleRR s 13a-15(e) and 15d-15(e)) and internal control over financia
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

establishing and maintaining disclosure controls and

l reporting (as

ff

a)

b)

c)

d)

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
which this report is being prepared;

d

the period in

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
external purposes in accordance with generally accepted accounting
and the preparation of financial statements forff
principles;

ff

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions abou
t the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

a

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'
e case of an annual report) that
ff
ff
has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and

s fourth fiscal quarter in th

ff

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)

b)

All significant deficiencies and material weaknesses
reporting which are reasonably likely to adversely affect the registrant's abia lity to record, process, summarize and
report financial information; and

in the design or operation of internal control over financial

k

ff

ff

Any fraud, whethe
the registrant's internal control over financial reporting.

r or not material, that involves management or other employees who have a significant role in

March 1, 2021
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, James R. Reske, certify that:

1.

2.

3.

4.

I have reviewed this annual report on Form 10-K of First Commonwealth Financial Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material facff
t 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;

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;

ff

The registrant's other certifying officer and I are responsible forff
procedures (as defined in Exchange Act RuleRR s 13a-15(e) and 15d-15(e)) and internal control over financia
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

establishing and maintaining disclosure controls and

l reporting (as

ff

a)

b)

c)

d)

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
which this report is being prepared;

d

the period in

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
external purposes in accordance with generally accepted accounting
and the preparation of financial statements forff
principles;

ff

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions abou
t the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

a

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'
e case of an annual report) that
ff
ff
has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and

s fourth fiscal quarter in th

ff

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)

b)

All significant deficiencies and material weaknesses
reporting which are reasonably likely to adversely affect the registrant's abia lity to record, process, summarize and
report financial information; and

in the design or operation of internal control over financial

k

ff

ff

Any fraud, whethe
the registrant's internal control over financial reporting.

r or not material, that involves management or other employees who have a significant role in

March 1, 2021
Date

James R. Reske

/S/
Signature

Executive Vice President, Chief Financial Officer and Treasurer
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,
2020, 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 finff ancial condition of First Commonwealth at
the end of such period and the results of operations of First Commonwealth forff

such period.

DATED: March 1, 2021

/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, James R. Reske, Executive Vice President, Chief Financial Officer and Treasurer of First Commonwealth Financial
Corporation (“First Commonwealth”), certify t
ended December 31, 2020, 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 finan
cial condition of First
h period.
Commonwealth at the end of such period and the results of operations of First Commonwealth for suc

hat the Annual Report of First Commonwealth on Form 10-K for the period

ff

ff

ff

DATED: March 1, 2021

James R. Reske

/S/
James R. Reske
Executive Vice President, Chief Financial Officer

ff

and Treasurer

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First Commonwealth Financial Corporation
601 Philadelphia Street
Indiana, Pennsylvania 15701-0400
(724) 349.7220
(800) 711.BANK (2265)
fcbanking.com