First Commonwealth Financial
Annual Report 2022

Plain-text annual report

Annual Report 2022 Dear Fellow Shareholders, It is with great pride that I write this 2022 letter to update you on the performance of First Commonwealth Financial Corporation and share our plans for the future. Through our growth strategies, dedicated employees and prudent risk management, we have achieved outstanding results. It has been a privilege to lead our company over the past decade. I am proud of all we accomplished together as we deliver on our commitment to create long-term value for our shareholders while living our mission of improving the financial lives of our neighbors and their businesses. Financial Performance I am pleased to report that 2022 was a year of solid financial performance for our company, with net income of $128.2 million and earnings per share of $1.37. The chart at the bottom of the page shows the remarkable progression of our earnings which more than tripled in the last ten years. And in 2022, we continued to build on this momentum from previous years. The combination of the improved earnings power of our company and a rising interest rate environment, helped to propel our core pre-tax pre-provision net revenue (“PTPP net revenue”) to a record $183.0 million for the year, an increase of $11.3 million over the previous year. It’s important to remember that our performance in 2021 was bolstered by the recognition of $23.2 million in interest and fees from Paycheck Protection Program (“PPP”) loans. This was a one-time, non-recurring event related to the Pandemic. These loans were nearly all forgiven by year-end 2021 and as a result, PPP loans made a negligible contribution to our revenue in 2022. In other words, after adjusting both 2021 and 2022 for the non-recurring PPP revenue, our core PTPP net revenue grew by $31.8 million. Our earnings in 2022 were fueled by a 32 basis point expansion in our net interest margin (“NIM”). We believe our balance sheet is positioned to respond favorably to rising rates due to a combination of variable rate commercial loans and a strong core depository base. As a result, our earnings benefitted from the Federal Reserve’s decisions to raise interest rates by a total of 4.25% in the second half of 2022. $140.0 $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $- $42.0 $41.5 $0.43 $0.23 $0.40 $0.18 2012 $107.5 $105.3 $1.08 $1.07 $44.5 $0.48 $50.1 $0.56 $59.6 $0.67 $55.2 $0.58 $0.28 $0.28 $0.28 $0.32 $0.35 $0.40 $138.3 $1.44 $128.2 $1.37 $73.4 $0.75 $0.44 $0.46 $0.48 $1.7 5 $1.5 5 $1.3 5 $1.1 5 $0.9 5 $0.7 5 $0.5 5 $0.3 5 $0.1 5 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Net Income - GAAP ($ millions) Net Income - Core ($ millions) Earnings per Share - GAAP Common Dividends Declared per Share We had a very successful year in terms of the organic growth of our loan portfolio, increasing by $863 million, or 13%. We executed on our strategy to generate broad-based loan growth across loan types and our footprint. While Ohio has typically been the driver of our loan growth in the past couple of years, our legacy markets in Pennsylvania also contributed meaningfully to this growth in 2022. As expected, our fee income was down from last year with the slowdown in mortgage originations and the decrease in Small Business Administration (“SBA”) loan premiums. However, we generated an increase in swap activity which mitigated those lower fees. Our SBA business continues to perform well with the momentum in originations building through the end of the year. Although we cannot predict the timing, we also expect the housing market to rebound. On the expense side, our core noninterest expense increased approximately $14.7 million due mainly to inflationary pressures. However, this was more than offset by $27.6 million in revenue growth, which resulted in positive operating leverage and an improvement in our efficiency ratio. A Decade of Progress Over the past ten years, the earnings power and growth trajectory of our company have undergone remarkable improvement, driven by a balance of organic growth and strategic acquisitions. We have improved our financial performance; enhanced our customer experience and product offerings; and expanded our lines of business and our presence in key markets. As shown in the tables below, we have consistently delivered strong results, outpacing our peers and delivering value for our shareholders. Financial Highlights ($ millions) Net Income (GAAP) Total Assets Total Loans Total Deposits Total Noninterest-bearing deposits Total Shareholders’ Equity FTE Employees (#) Per share data Earnings per share (GAAP) Tangible book value per share Tangible book value per share (excl. AOCI) Dividends per share Stock Price Performance Metrics ROAA (GAAP) ROATCE Efficiency Ratio Net Interest Margin Nonperforming Loans/ Total Loans 2012 2022 $ 42.0 $ 128.2 9,806 7,654 8,005 2,671 1,052 1,424 5,995 4,205 4,558 883 746 1,395 2012 2022 $ 0.40 $ 1.37 7.92 9.39 0.48 13.97 5.86 5.85 0.18 6.82 10yr CAGR +11.8% +5.0% +6.2% +5.8% +11.7% +3.5% +0.2% 10yr CAGR +13.1% +3.1% +4.8% +10.2% +7.4% 2012 0.71% 5.46% 66.52% 3.61% 2.56% Change 2022 1.34% +63 bp 11.99% +653 bp 54.59% (1,193) bp (3) bp (210) bp 3.58% 0.46% Investments Aligned with Long-term Value One of the noteworthy highlights of 2022 was our announced acquisition of Centric Financial Corporation (“Centric”), which we completed on January 31, 2023. Centric is a well-led, commercially- focused bank with approximately $1.0 billion in total assets. This acquisition extends our Pennsylvania footprint into the attractive Central and Southeastern Pennsylvania markets. More importantly, First Commonwealth and Centric share a very complementary culture and vision. Former Centric CEO Patti Husic led the organization since its inception in 2007, growing Centric Bank and developing close ties within its communities and customers. We believe Centric’s strong commercial focus, talented team and similar culture make it an excellent fit for First Commonwealth in what we now proudly call our Capital Region. Furthermore, we believe that our acquisition of Centric will be a key source of earnings to offset the cost of crossing $10 billion, which we anticipate will reduce our interchange fee income by approximately $14 million beginning on July 1, 2024. In addition to these developments, I am also excited to update our shareholders on the progress of our new Equipment Finance business, which we started to build from the ground up in 2021 with the lift-out of a number of employees from a competing bank. This new business line will allow us to provide financing solutions to small and mid-sized businesses nationwide and augment our existing commercial relationships within our market. In 2022, we originated nearly $80 million of loans and leases as this business continues to build scale. We expect equipment financing to be an important driver of loan growth in 2023. We also believe a strong regional leadership model has and will continue to be an important competitive advantage for our organization. This structure allows us to have a deep, local understanding of the markets we serve, and to build strong relationships with our customers and communities. Leaders are empowered to make decisions locally, allowing us to be responsive to our customers’ needs and to quickly adapt to changes in the local market. Our regional leaders are also accountable for the success of their markets, which opens lines of communication cross functionally and encourages deeper cross-selling. Digital Trends The financial industry is rapidly changing, and the adoption of digital solutions are at the forefront of this transformation. Today’s customers expect the availability of digital technologies to conduct their banking business quickly, easily and securely. While we continue to support a strong branch office network, we are proud of the digital evolution at First Commonwealth and are committed to providing solutions that meet our customers’ preferences. Our goal has been to make First Commonwealth the hub of the best digital financial service choices for our customers. Our near-term strategy focuses on four key elements: o o o o Improve consumer digital account acquisition sales and marketing capabilities to drive a higher percentage of new account volume over digital channels Improve and promote digital platform positioning and integrations to create an exceptional consumer user experience Improve business customer digital experience Improve payments capabilities for consumer and business customers through our product offerings. 2022 Highlights o Digital platform active users increased 5.5% and engagement increased significantly to 1.1 average logins per user per day versus 0.95 in 2021 o Mobile app growth continued with a 12.3% increase in active users – 84.4% of logins came through mobile o Zelle® adoption grew 38.8% with a 68.2% increase in transactions o New deposit accounts originated through digital channels increased by 6.3% We made significant investments in our digital capabilities as well. In 2022, we launched: o A new credit card that provides an integrated view within the digital platform o An online tool on our public website to help customers self-serve loan payments o Ability for customers to access their tax forms within the digital platform o Refer-a-friend link within digital platform to reward customers for referrals As customer needs and expectations around digital solutions continue to accelerate, so will our focus and investment in this dynamic space. Combined with our existing digital foundation and culture, we are positioned to maintain and improve our digital relevance in 2023 and beyond. Looking Ahead I am confident in our ability to continue to deliver strong results and to drive profitable growth. Our management team has aligned with our Board of Directors and communicated to our employees our strategic priorities for the upcoming year, to include: 1. Integrate the Centric Bank acquisition: We will bring the entire bank together to deliver our resources and products to clients and prospects. Our lines of business will fully capitalize on the opportunities within the region by choosing the right entry points and right personnel to lead the buildouts of mortgage, wealth, and insurance. 2. Grow our customer base: We will strive to grow and retain deposits, both consumer and business, across all regions with a particular emphasis on checking households. We must also profitably grow and expand all lending businesses with continued strong credit risk and capital management. Invest in technology: We will continue to invest in digital technologies and platforms to enhance the customer experience, improve efficiency and drive growth. 3. 4. Maintain operating leverage: We will continue to exert strong noninterest expense management to ensure positive operating leverage, to include employing technology to improve workflows and efficiency while also enabling higher levels of productivity across the workforce, and to enable continued transformation of our branch network in line with digital delivery preferences. 5. Leverage strong culture: We will leverage our culture across all businesses and geographies to strengthen leadership disciplines, talent management and retention processes as a source of competitive advantage for our Company, including our Diversity and Inclusion practices. 6. Enhance our brand: We will drive higher levels of brand awareness and consideration by aligning marketing spend with the Regional Business Model, establishing First Commonwealth as the “Best Bank for Business”, and evolving the marketing mix to prioritize digitally relevant tactics. I am optimistic about the opportunities for First Commonwealth in 2023, despite some looming fears that the United States economy could tip into a recession. We have built a resilient business model that we believe can withstand any challenges we may face. We are entering this time of economic uncertainty from a position of strength. Our asset quality metrics are at or near historical lows. And we have taken significant steps in recent years to create a more granular commercial loan portfolio with strict concentration limits within our footprint. I believe these decisions were prudent measures to ensure the long-term success of our business. As we move forward, it will be critical that we capitalize on organic growth opportunities in our existing markets with a keen focus on gathering deposits to support our loan growth. I am confident in our team of talented bankers and their ability to profitably grow our business. In closing, I am proud of what we have accomplished over the past ten years and I am confident in our ability to continue to deliver strong results. Let me express my gratitude to our employees, customers and shareholders for their ongoing support of First Commonwealth. On behalf of the entire management team and Board of Directors, I would like to thank you for your interest and investment in our company. Sincerely, T. Michael Price President and Chief Executive Officer [THIS PAGE INTENTIONALLY LEFT BLANK] 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, 2022 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file Number 001-11138 FIRST COMMONWEALTH FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) PENNSYLVANIA (State or other jurisdiction of incorporation or organization) 25-1428528 (I.R.S. Employer Identification No.) 601 PHILADELPHIA STREET INDIANA,, PA (Address of principal executive offices) 15701 (Zip Code) Registrant’s telephone number, including area code: ((724)) 349-7220 Securities registered pursuant to Section 12(b) of the Act: Title of each class COMMON STOCK, $1 PAR VALUE g y Trading Symbol FCF Name of each exchange on which registered g NEW YORK STOCK EXCHANGE g 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 frff om 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 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 c in RulRR e 12b-2 of the Exchange Act. ompany," and "emerging growth company" ff 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 fiff nancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over fiff nancial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the regis reflff ect the correction of an error to previously issued financial statements. ☐ ff trant included in the filing Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes RR ☐ 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, 2022) was approximately $1,235,063,508. The number of shares outstanding of the registrant’s common stock, $1.00 Par Value as of February 24, 2023, was 103,069,202. 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 25, 2023 are incorporated by reference into Part III. FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES FORM 10-K INDEX PART I ITEM 1. Business ITEM 1A. Risk Factors ITEM 1B. Unresolved Staff Comments ITEM 2. Properties ITEM 3. Legal Proceedings ITEM 4. Mine Safety Disclosures Executive Officers of First Commonwealth Financial Corporation PART II ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities ITEM 6. [Reserved] 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 ITEM 9C. PART III Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ITEM 10. Directors, Executive Officers and Corporate Governance ITEM 11. Executive Compensation ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ITEM 13. Certain Relationships and Related Transactions, and Director Independence ITEM 14. Principal Accountant Fees and Services PART IV ITEM 15. Exhibits, Financial Statements and Schedules ITEM 16. Form 10-K Summary Signatures PAGE 4 16 24 24 24 24 25 26 27 28 51 52 121 121 123 123 124 124 124 125 125 126 127 128 ff 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 “Reform Act”), notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in our future filings with the Securities and Exchange Commission, in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact and constitute forward-looking statements within the meaning of the Reform 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 Firs ff 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 discussed in the forward-looking statements include, but are not limited to: • . Factors that could cause actual results to differ from those t Commonwealth or its management or Board of ff rr ff ff s, including the interest rate policies of the eserve requirements based upon the periodic review thereof under relevant regulatory and 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. ff Changes in estimates of future r accounting requirements. The effects of and changes in trade and monetary and fiscal policies and law 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 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. ff Our success at managing the risks involved in the foregoing items. • • • • • • • • • • • • • • • • • • • • • • • • • • • Forward-looking statements speak only as of the date on which such statements are made. We do not undertake any obligation to update any forward-looking statement to reflect events or circums reflect the occurrence of unanticipated events. tances after the date on which such statement is made, or to ff ff 3 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, ("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, 2022, we had total assets of $9.8 billion, total loans of $7.7 billion, total deposits of $8.0 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. ff FCB is a Pennsylvania bank and trust company. At December 31, 2022, the Bank operated 119 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 132 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 Yor and Ohio. rr ff k, 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. 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, O hio 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 the Ohio market by opening a corporate loan production office in Columbus, Canton and Cleveland, Ohio, and mortgage loan offices in Hudson, Canfield and Lewis Center, Ohio. ff 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. On August 30, 2022, we entered into an agreement and plan of merger to acquire Centric Financial Corporation ("Centric") and its banking subsidiary Centric Bank, which operates branches located in Harrisburg, Hershey, Mechanicsburg, Camp Hill, Doylestown, Devon, and Lancaster, Pennsylvania, and loan production offices in Lancaster and Devon, Pennsylvania. We completed the acquisition of Centric on January 31, 2023. 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 P result of our prior acquisitions and de novo strategy, FCB operates 47 branches and a corporate banking center in the Pittsburgh metropolitan statistical area ("MSA") and currently ranks tenth in deposit market share in the Pittsburgh MSA. In the first quarter of 2022, we entered the equipment leasing and finance business with a division based in the suburban Philadelphia area. ittsburgh area. As a ff 4 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 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 our 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 ff factors and considerations. ff Loan Portfolio The Company’s loan portfolio includes several categories of loans that are discussed in detail below. Commercial, Financial, Agricultural and Other , g , ff 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 s 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. ecured by a first lien position on the borrower’s business 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 forff commercial loans. Approximately 20%, by principal amount, of our commercial real estate loans involve owner-occupied properties. ff 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 ff to confirm that the project will be economically feasible and f inancially viable upon completion and is generally conducted as ff 5 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. Construction loans to residential builders are generally made for the constr rr uction 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. ff ff 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 contr complete the project to specifications and economic conditions that could impact demand for or supply of the property being constructed. actor to ff 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 ar 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,” “interes e not saleable in the secondary market to the government-sponsored t-only” or “negative amortization” mortgages. ff ff r 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 ted of $2.7 prudently managing our cost of funds. At December 31, 2022, we held $8.0 billion of total deposits, which consis ff 6 billion, or 33%, in non-interest bearing checking accounts, $4.9 billion, or 62%, in interest-bearing checking accounts, money market and savings accounts, and $0.4 billion, or 5%, in CDs and IRAs. 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. ff ff Human Capital Resources rr Workfor f ce Composition and Demographics g p p At December 31, 2022, First Commonwealth and its subsidiaries employed 1,403 full-time employees and 74 part-time employees with 636 exempt and 841 non-exempt employees. The average age of the workforce is 43.6 years and the average tenure is 7.9 years. Our workforce is 66% female. Diversity & Inclusion y We continue to accelerate our focus on and action towards Diversity & Inclusion ("D&I") in several key ways. Vicki L. Fox, Senior Vice President/Diversity & Inclusion Officer, has overall responsibility for identifying and mentoring diverse talent, keeping management apprised of emerging D&I issues, and evolving our D&I practices. Ms. Fox works closely with our Regional Community Reinvestment Act Officers and Community Engagement Manager to deepen the connections with our company and communities, especially our Pittsburgh and Central Ohio markets. Ms. Fox serves as the co-chair of our Diversity & Inclusion Committee, along with T. Michael Price, CEO. The Committee is comprised of executive, senior leadership and diverse employees and is actively involved in developing and overseeing efforts to support our D&I initiatives. The following is a summary of D&I initiatives in 2022: • We distributed regional and line of business diversity scorecards in each of our five regions and to our executive ff officers for their units to increase accountability for diversity in our workforce. • In addition to our already established African American employee resource group, we created groups to include our Hispanic Heritage and LGBTQ employee base. The groups' purpose is to provide support in personal and career development, offer diverse perspectives into the workplace and create a safe space where employees can bring their authentic selves to the table. • Our strong partnership with BankWork$ continued in our Pittsburgh market. Through a structured training program, BankWork$ prepares people from underserved communities for entry-level, branch roles in banking. First Commonwealth actively participates by engaging in classroom discussions with students, attending job fairs and hiring graduates. • We connected with the Ohio Banker’s League Summer Bank Institute. This program is designed to recruit diverse rr interns for the banking industry, which resulted in hir ff ing two summer interns at First Commonwealth. • First Commonwealth served as a corporate sponsor for EmployHER Pittsburgh, a new program dedicated to pr marginalized women looking to enter or re-enter the workforce with resources and support. ff oviding Our focus on D&I has produced meaningful progress in several s minorities comprised 7% of the workforce. Racial minorities and women comprised 5% and 50.8%, respectively of those in leadership positions (defined by corporate title Assistant Vice President and higher). Women, including one racial minority, hold three seats on our Board of Directors. corecard categories. As of December 31, 2022, racial ff Several of our employees were recognized for their work advancing D&I, including Jane Grebenc, Chief Revenue Officer and Bank President, who was recognized by PA Business Central Top Women CEO’s. T. Michael Price, CEO, received the PA Bankers Association Diversity, Equity & Inclusion Changemaker Award. Other employees received external recognitions, including, PA Bankers Association Young Professional Champion, and PA Business Central Top 100 People recognition. 7 TT Talent Attraction and Retention Our employees are key to the success of delivering our mission as an organization and achieving our financial targets. We are committed to attracting, retaining and promoting top quality talent regardless of race, color, religion, gender, sexual orientation, national origin, age, disability, marital status, military status, genetic information or any other category protected by federal, state and local laws. 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 environment and culture for our employees that is inclusive, supportive, and frff ee 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. ff TT Talent Development p Guided by executive leadership, our Strategic and Inspired Leadership ("SAIL") program is in place to strengthen our senior leadership. Over 150 of our leaders are involved in quarterly forums and regional “musters” (or meetings) that focus on relevant topics, such as our strategic and operating plans, D&I, leadership development, employee engagement and learning & growth opportunities. The sessions are informative and collaborative and valued by the participants. Since 2009, we’ve supported a mentorship program, open to all employees. The program provides 1:1 mentorship pairings, group development sessions and volunteer opportunities. In 2022, there were a total of 136 participants, including 80 women and 17 racial minorities. Within our retail unit, we provide a career development program for entry level employees to help them achieve positions of increased opportunity. Leaders are given industry-specific training as well as development opportunities to understand their strengths and improve coaching and execution skills. Lastly, we invest in an established, industry-specific and developmental training course library from which all employees benefit. Our talent acquisition priority is to foster the development of internal talent and to provide career advancement opportunities to our employees. In 2022, we promoted 200 employees, of whom 65% were female and 6% were self-identified minorities. We leveraged the lessons learned as a result of remote work through the pandemic to effectively structure and deliver a permanent telecommuting policy and program with approximately 28% of our workforce permanently telecommuting as of December 31, 2022. We believe that flexible work location opportunities will allow us to broaden our candidate pool and retain employees whose jobs can be performed remotely. ff ff We listen to our employees through market visits, executive forums and our annual employee engagement survey. In 2022, 75.6% of our employees completed the annual survey. Our overall rating exceeded that of the financial services industry and all companies that utilize our survey provider. The survey reflected that employees have fulfillment in working for a ff community bank and making a difference. They are satisfied with their jobs and First Commonwealth as a whole. Our employment turnover for 2022 was calculated at 28.1%, which is generally aligned with industry benchmarks. Compensation and Benefits p f We strive to provide a competitive and fair total compensation package to our employees. We price positions against recent industry benchmark reports and salary surveys to establish salary ranges. In 2022, we made significant steps to attract and retain employees in our retail and operations units by increasing the base pay in several positions to align with career advancement opportunities and to address market competition and wage compression. Employee benefits plans support employees with insurance, retirement and work/life plans. Our health plan is structured with a tiered premium approach in which 35% of plan participants are in the lowest tier and pay a lower monthly premium than the other two higher paying tiers. Our 401k plan offers an employer match on employee contributions of up to 4% of eligible earnings. We offer a variety of other benefits, including life insurance and disability plans, a generous paid-time off policy, and a wide array of voluntary plan options. f y Health and Safety HH We continue to prioritize the safety and well-being of our employees, customers, partners and communities through healthy workplace practices and consistent communication reminders and updates. We also support our employees by offering several resources resources to help them in certain life situations, such as personal counselling, legal services, and adoption. . An employee assistance program connects employees with ff We also partner with a wellness vendor to provide our healthcare members personal access to their own Health Advisor to coordinate care, and to have free access to nutrition counseling, fitness and financial coaching, mental and emotional health 8 specialists, and condition management services. They receive healthy living emails and resources with helpful wellness tips, success stories, and inspirations to guide them on their own wellness journeys. A Concierge Care program is available to help healthcare members navigate the complexities of healthcare. They work to coordinate care needs with doctors, caregivers and pharmacists. We also offer an interest-free advance up to the healthcare member's deductible and out-of-pocket limits with payroll deduction payback options. ff In 2022, we introduced our paid maternity leave benefit that provides ten weeks and our paid parental leave that provides three weeks of fully paid leave for full time employees with more than one year of service. We also provide a structur employees with less tenure and for part time employees. In addition to providing the paid maternity leave for birth mothers, the parental leave is extended to biological, foster, or adoptive mothers or fathers; legal spouses or domestic partners of the birth, fosff ter, or adoptive parent; or appointed legal guardians. e for Lastly, our employees support each other through Hearts2Hands, an employee-funded program that provides financial assistance to employees who experience hardships. Culture and Engagement g g Our culture is rooted in our core values of accountability, customer focus, integrity, excellence and inclusion, and in our mission to improve the financial lives of our neighbors and their businesses. We practice a Customer Service Promise of five critical behaviors that we encourage every one of our employees to demonstrate at every customer interaction – internal or external – with the intent of creating an extraordinary customer experience, which is measured by our customer satisfaction scores. The five behaviors are to put customers first, be relentless, inspire confidence, champion simplicity and obsess with yes. We are proud that we were selected as a Forbes World’s Best Bank in 2022 for the f ff SBA lender ranking in the Pittsburgh district for the second consecutive year. We were the #2 SBA lender across all of Pennsylvania and a top SBA lender in our Ohio markets. Based on employee feedback, First Commonw Workplace in the Pittsburgh area in 2022 for the fourth consecutive year. ourth consecutive year and ear ff ff ealth was named a Top ned the #1 In 2022, First Commonwealth supported our communities with more than $1,900,000 in community giving reaching nearly 700 different organizations. More than 50% of that giving is CRA eligible meaning that it’s directed into low to moderate income communities where we anticipate it’s needed the most. That percentage in 2021 was 35%. Our employees provided 12,000 volunteer hours including about 600 hours of financial education reaching more than 7,000 participants with topics ranging frff om financial literacy for elementary age children, to preparing for retirement and fraud awareness for retired individuals. To recognize employees who go above and beyond in their volunteerism and community engagement, we present a quarterly “Golden Tower” award which includes $1,000 for the recipient to give to a charitable organization of their choice. We provide corporate support for the United Way, including an employee campaign which exceeded our 2022 goal with employee contributions of $92,000, a 13.9% increase over 2021. With the company match, that meant $184,000 donated to United Way chapters throughout our footpr int. ff 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. ff ff Bank Holding Company Regulation g p g y 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 s 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 s 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. hares of any bank that is not ystem, the ff ff ff 9 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 ( 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. ii) complementary to a financial activity and does not ff 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 ff may require divestiture of the holding company’s depository institutions. rr 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. ff ff ff Affff iliate Transactions. Transactions between FCB, on the one hand, and First Commonw 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 affff iliates, and generally requires those transactions to be on terms at least as favorable to F CB 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 affff iliate, certain derivative transactions that create a credit exposure to an aff ff affff iliate 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. ealth Financial Corporation and its iliate, the acceptance of secur ities issued by the ff ff 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. 10 g 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, 2022, FCB could pay dividends to First Commonwealth of $294.3 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 f ff 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. Perf ff ormance less than rr satisfactor ff y may be the basis for denying an application. For its most recent examination, FCB received a “satisfactor y” rating. inancial ff ff In May 2022, the Federal Reserve Board, the FDIC and the Office of the Comptroller of the Currency (“OCC”) issued a joint proposal that would, among other things (i) expand access to credit, investment and basic banking services in low- and moderate-income communities, (ii) adapt to changes in the banking industry, including internet and mobile banking, (iii) provide greater clarity, consistency and transparency in the application of the regulations and (iv) tailor performance standards to account for differences in bank size, business model, and local conditions. We will continue to evaluate the impact of any changes to the regulations implementing the CRA and their impact to our financial condition, res liquidity, which cannot be predicted at this time. ults of operations, and/or ff rr 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 an 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 interes 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 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. d practices. These and other federal laws, among other things, t rates and subject us to substantial regulatory ff 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 11 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. Because First Commonwealth exceeded the $10 billion asset threshold with the acquisition of Centric, the Bank will become subject to the CFPB's supervision and enforcement with respect to federal consumer protection laws. State authorities are responsible forff monitoring our compliance with all state consumer laws. der or condition imposed by the FDIC. As an institution with less than $10 billion in assets, FCB’s assessment rates for 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, rr rule, or 2022 were based on its risk classification (i.e., the level of risk it poses to the FDIC’s deposit insurance fund). Having crossed the $10 billion asset threshold in 2023, assessment rates for future periods will be 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. ff In October 2022, the FDIC adopted a final rule to increase the initial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023. The increased assessment is expected to improve the likelihood that the DIF reserve ratio would reach the statutory minimum of 1.35% by the statutory deadline prescribed under the FDIC's amended restoration plan. q Capital Requirements p 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 frff amework 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%); ff 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. ff ff 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 a standardized approach for risk weightings that expand the risk-weighting categories from the general risk-based capital rules 12 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. In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted. Among other things, the IRA imposes a new 1% excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations. With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements. q Liquidity Requirements q y The Basel III liquidity framework requires banks and bank holding companies to measure their liquidity against specificff 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, referff red 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. ff Prompt Corrective Action mp 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 r egulation. 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. ff 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 purpos capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other rr purpos e of applying prompt corrective action regulations, and the es. ff ff 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 13 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 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 unsaf ff deems the institution to be engaging in an unsafe or unsound practice. e or unsound condition or ff 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, 2022, 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. TT 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 Volcker Rule. However, with the acquisition of Centric in January 2023, we will be over $10 billion and subject to the Volcker Rule. Depositor Preference p f 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. II Interchange Fees g 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 unaf actions on each debit or ff prepaid product. filiated networks for routing trans ff ff ff The Dodd-Frank Act contained an exemption from the interchange fee cap for any debit card issuer that, together with its affff iliates, has total assets of less than $10 billion as of the end of the previous calendar year. As of December 31, 2022, we qualified for this exemption. We earned approximately $27.6 million in card related interchange income during the 2022 fiscal year. If we had not qualified for this exemption, we estimate that our interchange income would decrease by $14.1 million. First Commonwealth's total assets are expected to exceed $10 billion as of December 31, 2023, and as such, we expect to become subject to the interchange fee cap beginning July 1, 2024. Financial Privacyy ff The federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaf ff filiated 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. 14 g Anti-Money Laundering and the USA Patriot Act y 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 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 ins ff 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. titution to maintain and implement adequate programs to ff O Office of For ff f eign Assets Control Regulation g g 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 occurr 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. ence. Failure to ff y Cybersecurity y 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 ff 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 als ff 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 ff financial penalties. o expected to develop appropriate processes to enable recovery of data and business operations and ff 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. ff 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 ff further discussion of risks related to cybersecurity. 15 Future Legislation and Regulation g g 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 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 affff ected, perhaps materially, as a result. ff ff 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. ff ff 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 r isk factors. If any of the following risks actually occur, our business, ff 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. r ff ff 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 sets and liabilities, and could also affect (i) our ability to originate loans and obtain deposits, (ii) the fair value of our financial as (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 af ff investments fall more quickly than the interest rates paid on deposits and other borrowings. 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. fected if the interest rates received on loans and other ff ff ff 16 We May Be Adversely Impacted by the Transition fr MM om LIBOR as a Reference Rate II In 2017, the United Kingdom’s Financial Conduct Authority (“FCA”) announced that after 2021 it would no longer compel ff banks to submit the rates required to calculate the London Interbank Of fered Rate (“LIBO r administrator of LIBOR announced it would consult on its intention to extend the retirement date of certain offered rates, whereby the publication of the one-week and two-month U.S. Dollar LIBOR settings would cease after December 31, 2021, but the publication of the remaining U.S. Dollar LIBOR settings would continue until June 30, 2023. Given consumer protection, litigation, and reputation risks, in November 2020, following the administrator’s consultation announcement, the bank regulatory agencies 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 would 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. On March 5, 2021, the FCA and the administrator of LIBOR confirmed that immediately after ff December 31, 2021, publication of the one-week and two-month U.S. Dollar LIBOR settings would cease and immediately after June 30, 2023 (the “Transition Date”), any remaining U.S. dollar LIBOR s ff longer be representative. ettings would either cease to be published or no R”). In November 2020, the Accordingly, we ceased entering into new contracts that use LIBOR as a reference rate prior to December 31, 2021 and have been diligently working to transition our remaining LIBOR exposure to alternative index rates. Depending on the particular circumstances and customer preference, we have offered several alternative index rates to replace LIBOR in our affected contracts with customers desiring to enter into proactive modifications prior to the Transition Date, including the Secured Overnight Financing Rate (“SOFR”), the Bloomberg Short Term Bank Yield Index (“BSBY”), and the Prime Rate (as published in the Wall Street Journal), each with appropriate spread adjustments. After diligently analyzing the options available to us under applicable legal documents and monitoring market acceptance, and in accordance with guidance from the Alternative Reference Rates Committee of the New York Fed (“ARRC”), the federal bank regulatory agencies, and the Federal Adjustable Interest Rate (LIBOR) Act of 2021 (the “LIBOR Act”) and its implementing regulations, we have developed a transition plan to replace the LIBOR index in all affected contracts that remain outstanding as of June 30, 2023 to the appropriate version of the SOFR Rate, with appropriate Board-recommended spread adjustments as described in the LIBOR Act, which we have determined to be appropriate for our funding model and customer needs. 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 MM As of December 31, 2022, commercial real estate mortgage loans comprised approximately 31% 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. 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 effff ect on our business, financial condition and r esults of operations. ff ff Our Allowance for Credit Losses may be Insufficient II All borrowers carry the potential to default and our remedies to recover may not fully s 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 atisfy money previously loaned. We ff 17 ff 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 under or forecasts, new information regar ding existing loans, identification of additional problem loans and other factors, both w 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. go material changes. Changes in economic conditions ithin ff ff ff Liquidity Risk We Are Subject to Liquidity Risk ff ff s that could reduce our access to liquidity sources include a 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. Factor downturn in the economy, difficult credit markets or adverse regulatory actions against us. Our access to deposits may also be ff affff ected by the liquidity needs of our depositors. In particular, a subs 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. Our access to deposits may be negatively impacted by, among other factors, higher interest rates which could promote increased competition for deposits, including from new financial technology competitors, or provide customers with alternative investment options. 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 mater ial adverse effect on our business, financial condition and results of operations. tantial majority of our liabilities are demand, savings, ff ff Operational Risks Labor shortages and constraints in the supply chain could adversrr ely affect our customers’ operations as well as our operations. Many sectors in the United States and around the world are experiencing a shortage of workers. The shortage of workers is exacerbating supply chain disruptions around the world, causing certain industries to struggle to regain momentum due to a lack of workers or materials. Our commercial customers may be impacted by the shortage of workers and constraints in the supply chain, which could adversely impact our customers’ operations. Customers may experience disruptions in their operations, which could lead to reduced cash flow and difficulty in making loan repayments. The financial services industry has also been affff ected by the shortage of workers, and First Commonwealth has experienced the intense competition for talent that is currently underway in the financial services industry. This may lead to open positions remaining unfilled for longer periods of time or a need to increase wages to attract workers. We have had to recently increase wages in certain positions to attract talent, particularly in entry-level type positions and certain specialty areas. ff rr ff r 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 bus results of operations. iness, financial condition and ff ff ff The Value of Our Goodwill and Other Intangible Assets May Decline in the Future II As of December 31, 2022, we had $312.5 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 ff decline in the price of the Company’s common stock may necessitate taking charges in the futur our goodwill and other intangible assets which could have a material adverse effect on our business, financial condition and results of operations. e related to the impairment of ff 18 We Are Subject to Risk Arising from Failure or Circumvention of Our Controls and Procedures e or circumvention of our controls and procedures; failure to comply with regulations related to controls and procedures; Our internal controls, disclosure controls and procedures, and corporate governance policies and procedures are based in part on r certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failur ff or failure to comply with our corporate governance policies and procedures could have a material adverse effect on our ff 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 res reputational damage or legal risk and have a material adverse effect on our business, financial condition and results of operations. ult in ff 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 busines ff 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. s and/or new products and services we invest significant time ff ff 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 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 ar e 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 se effect on our business, financial condition and results of operations. ff financial services industry could have a material adver ff ff ff ff Furthermore, any new line of business, new product or service and/or new technology could have a significant impact on the effff ectiveness of our system of internal controls. Failure to succes 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. sfully manage these risks in the development and 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 pects may be significantly damaged by adverse publicity ff financial services industry generally. In addition, our reputation or pros 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 affff ect cons these difficult market conditions on us, our customers and others in the financial institutions industry. umer confidence levels. A decrease in consumer confidence levels would likely aggravate the adverse effects of ff ff 19 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 Fir 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. st Commonwealth’s ff ff 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 trans business operations. actions or disruption of our or our clients’ or other third parties’ ff 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. 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, sens 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 ff foregoing could have a material adver se effect on our business, financial condition and results of operations. itive or otherwise ff ff rr 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 the 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. ff We 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. ff ff ff 20 External and Market-Related Risks We are Subject to Risk Arising from The Soundness of Other Financial Institutions and Counterparties TT 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 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. ff Competition from Other Financial Institutions in Originating Loans, Attracting Deposits and Providing Various Financial Services May Adversely Affect Our Profitability. We face substantial competition in originating loans and attracting deposits. This competition comes principally from other banks, savings institutions, mortgage banking companies and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. Many of our competitors enjoy 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. ff 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. ff r 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. ff 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 r operations. ff esults of 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, 21 ff 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 m The Trading Volume in Our Common Stock Is Less Than That of Other Larger Financial Services Com TT panies 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. First Commonwealth May Not Continue to Pay Dividends on Its Common Stock in The Future ff 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 II 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 s tock, you could lose ff some or all of your investment. ff 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 ThirTT d Party. al regulations could delay, defer or prevent a third party from acquiring us, despite the possible benefit to our shareholders, Provisions in our articles of incorporation and bylaws, the corporate law of the Commonwealth of Pennsylvania, and state and ff feder 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. ff General Risk Factors We are Subject to Risk from Fluctuating Conditions in the Financial Markets and Economic and Political Conditions Generally MM 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 22 disasters; trade policies and tariffs; or a combination of these or other factors. In addition, financial markets and global supply chains may be adversely affected by the current or anticipated impact of military conflict, including the current Russian invasion of the Ukraine, terrorism or other geopolitical events. Current economic conditions are being heavily impacted by elevated levels of inflation and rising interest rates. A prolonged period of inflation may impact our profitability by negatively impacting our fixed costs and expenses. Economic and inflationary pressure on consumers and uncertainty regarding economic improvement could result in changes in consumer and business spending, borrowing and saving habits. Such conditions could esults of operations. have a material adverse effect on the credit quality of our loans and our business, financial condition and r ff 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 effff ect on our business, financial condition and r esults of operations. ff ff 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. ff ff 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 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. MM 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 tandard report our financial condition and results of operations. In some cases, we could be required to apply a new or revised s retroactively, resulting in changes to previously reported financial results or a cumulative charge to retained earnings. See New ff 23 Accounting Pronouncements at the end of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations elsewhere in this report for further information regarding pending accounting standards updates. ff We May Not Be Able to Attract and Retain Skilled People MM 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. p Properties ff 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 119 community banking offices, of which 44 are leased and 75 are owned. We also lease two mortgage loan production offices, four corporate loan production offices and an office for our equipment finance bus iness. ff 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 ff facilities. ITEM 3. g Legal Proceedings g 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. rr ITEM 4. y Mine Safety Disclosures Not applicable. 24 Executive Officers of First Commonwealth Financial Corporation p The name, age and principal occupation for each of the executive officers of First Commonwealth Financial Corporation as of December 31, 2022 is set forth below: Jane Grebenc, age 64, 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. ff Brian Karrip, age 62, 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 Fff irstMerit 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 63, has served as Executive Vice President and Chief Audit Executive of First Commonwealth ly Senior Vice President / Loan Review and Audit Manager. Financial Corporation since January 1, 2009. He was former ff Norman J. Montgomery, age 55, 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 60, 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 Corpor ation. 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. ff ff James R. Reske, age 59, joined First Commonwealth Financial Corporation as Executive Vice President, Chief Financial Offff icer 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 53, has served as Executive Vice President / Human Resources since March 1, 2013. Ms. Riggle has been with First Commonwealth since 1991. Over the course of her tenure, Ms. Riggle has been responsible for the daily oper ations of the Human Resources function and was actively involved in the establishment and development of a centralized corporate human resources function within the Company. ff Matthew C. Tomb, age 46, 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 Sher L.L.C. in Denver, Colorado. man & Howard ff 25 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, 2022, there were approximately 5,263 holders of record of First Commonwealth’s common stock. The table below sets forth the high and low sales prices per share and cash dividends declared per share for common stock of First Commonwealth for each quarter during the last two fisff cal years. Period 2022 First Quarter Second Quarter Third Quarter Fourth Quarter Period 2021 First Quarter Second Quarter Third Quarter Fourth Quarter High Sale Low Sale Cash Dividends Per Share $ $ 17.55 15.23 15.39 14.92 $ 15.12 13.01 12.84 12.99 0.115 0.120 0.120 0.120 High Sale Low Sale Cash Dividends Per Share $ 15.51 $ 10.88 $ 15.54 14.08 16.16 13.77 12.45 13.99 0.110 0.115 0.115 0.115 Federal and state regulations contain restrictions on the ability of First Commonwealth to pay dividends. For information regarding restrictions on dividends, see Part I, Item 1 “Business—Supervision and Regulation—Dividends” and Part II, Item 8, “Financial Statements and Supplementary Data—Note 24, Regulatory Restrictions and Capital Adequacy.” In addition, under the terms of the capital securities issued by First Commonwealth Capital Trust II and III, First Commonwealth 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. 26 The following five-year performance graph compares the cumulative total shareholder return (assuming reinvestment of dividends) on First Commonwealth’s common stock to the S&P U.S. BMI Banks Index and the Russell 2000 Index. The stock performance graph assumes $100 was invested on December 31, 2017, and the cumulative r subsequent fiscal year end. eturn is measured as of each ff Index First Commonwealth Financial Corporation Russell 2000 Index S&P U.S. BMI Banks Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 100.00 100.00 100.00 86.36 88.99 83.54 106.79 111.70 114.74 84.49 134.00 100.10 128.36 153.85 136.10 115.13 122.41 112.89 Period Ending Unregistered Sales of Equity Securities and Use of Proceeds q g y For additional information, please see Part III, Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters." Information called for by this item concerning security owner 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. ship of certain beneficial ff ITEM 6. ] [Reserved] [ 27 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations p g y 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, 2022, and 2021. The purpose of this discussion is to focus on information concerning our financial condition and results of operations that is not readily apparent frff om 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 pr esented 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 1, 2022 for a discussion and analysis of the factors that affected periods prior to 2022. ff 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, 2022, FCB operated 119 community banking offices throughout Pennsylvania and Ohio, as well as loan production offices in Pittsburgh, Pennsylvania, and Cleveland, Columbus, Canton, Lewis Center and Hudson, 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 f ff 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. unds and stock ff 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 offsff et 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. ff Critical Accounting Policies and Significant Accounting Estimates ff 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 iod inaccurate or vary from actual results and may significantly affect our reported results and financial position for the per 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. ff Allowance for Credit Losses f 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 and lease portfolio as of the balance sheet date. The provision is a periodic charge to earnings in an amount necessary to maintain the allowance at a level that is appropriate based on management’s assessment of 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. 28 • • • Loans are segmented into groups with similar characteristics and risks and an allowance for credit losses is calculated ff 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 pr 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 ff forecast from a nationally recognized firm. obability of default and loss given default estimates. ff ff 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 ff 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 rr • 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. ff edit losses; some are quantitative, while others require qualitative ff There are many factors affecting the allowance for cr 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, 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. As noted above, the allowance for credit losses is estimated using a number of inputs and assumptions. Management's sensitivity analysis of the allowance identified that the model has the highest degree of sensitivity around values used in the economic forecast, specifically national unemployment and gross domestic product. Additionally, there is also a high degree of sensitivity related to estimated prepayment speeds as it is a major driver for the life of loan expectations. The sensitivity of estimated prepayment speeds had the largest impact on the residential first lien loan pool. ff ff 29 Selected Financial Information ff The following table provides selected f ff inancial information for the periods ended December 31, Interest income Interest expense Net interest income Provision for credit losses Net interest income after provision forff credit losses Net securities gains (losses) Other income Other expenses Income before income taxes Income tax provision Net Income Per Share Data—Basic Net Income Dividends declared 2022 2021 2020 2019 2018 (dollars in thousands, except share data) $ $ $ $ 329,953 17,732 312,221 21,106 291,115 2 98,706 229,638 160,185 32,004 128,181 1.37 0.475 $ $ $ $ 293,838 15,297 278,541 (1,376) 279,917 16 106,741 213,857 172,817 34,560 138,257 1.45 0.455 $ $ $ $ 301,209 32,938 268,271 56,718 211,553 70 94,406 215,826 90,203 16,756 73,447 0.75 0.440 $ $ $ $ 325,264 55,402 269,862 14,533 255,329 22 85,463 209,965 130,849 25,516 105,333 1.07 0.400 $ $ $ $ 292,257 40,035 252,222 12,531 239,691 8,102 80,535 195,556 132,772 25,274 107,498 1.09 0.350 Average shares outstanding 93,612,043 95,583,890 97,499,586 98,317,787 99,036,163 Per Share Data—Diluted Net Income $ 1.37 $ 1.44 $ 0.75 $ 1.07 $ 1.08 Average shares outstanding 93,887,447 95,840,285 97,758,965 98,588,164 99,223,513 At End of Period Total assets $ 9,805,666 $ 9,545,093 $ 9,068,104 $ 8,308,773 $ 7,828,255 Investment securities 1,250,237 1,595,529 1,205,294 1,256,176 1,335,228 Loans and leases, net of unearned income Allowance for credit losses Deposits Short-term borrowings Subordinated debentures Other long-term debt Shareholders’ equity Key Ratios Return on average assets Return on average equity Net loans to deposits ratio Dividends per share as a percent of net income per share Average equity to average assets ratio 7,642,143 6,839,230 6,761,183 6,189,148 5,774,139 102,906 92,522 101,309 51,637 47,764 8,005,469 7,982,498 7,438,666 6,677,615 5,897,992 372,694 170,937 4,862 1,052,074 138,315 170,775 5,573 1,109,372 117,373 170,612 56,258 1,068,617 201,853 170,450 56,917 1,055,665 721,823 170,288 7,551 975,389 1.34 % 1.47 % 0.82 % 1.31 % 1.42 % 11.99 94.18 34.67 11.16 12.55 84.52 31.38 11.72 6.82 89.53 58.67 12.00 10.32 91.91 37.38 12.71 11.41 97.09 32.11 12.47 Results for 2020 through 2022 reflect accounting for the allowance for credit loss methodology, while results prior to 2020 reflect accounting under the incurred methodology. ff ff es under the current expected credit loss Results of Operations—2022 Compared to 2021 II Net Income Net income for 2022 was $128.2 million, or $1.37 per diluted s diluted share in 2021. The decrease in net income was the result of a $22.5 million increase in provision for credit losses, an hare, as compared to net income of $138.3 million, or $1.44 per ff 30 increase of $15.8 million in noninterest expense and a decrease of $8.0 million in noninterest income offset by an increase of $33.7 million in net interest income. Our return on average equity was 12.0% and our return on average assets was 1.34% for 2022, compared to 12.6% and 1.47%, respectively, for 2021. Average diluted shares for the year 2022 were 2% less than the comparable period in 2021 primarily due to $15.6 million of common stock buybacks completed during 2022. Net Interest Income II 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, ff 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 2022 was $1.0 million compared to $1.1 million in 2021. Net interest income comprises a majority of our operating revenue (net interest income before provision expense plus noninterest income) at 76% and 72% for the years ended December 31, 2022 and 2021, respectively. rr Net interest income, on a fully taxable equivalent basis, was $313.3 million for the year-ended December 31, 2022, a $33.6 million, or 12%, increase compared to $279.6 million for the same period in 2021. The net interest margin, on a fully taxable equivalent basis, increased 32 basis points to 3.58% in 2022 from 3.26% in 2021. The net interest margin is affected by both ff 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 2022 was further impacted by the effect of the mix of the asset growth and higher interest rates, resulting in an increase in the net interest margin for the year ended December 31, 2022. Average earning assets for the year ended December 31, 2022 increased $153.3 million, or 2%, compared to the year ended December 31, 2021. The change in the volume of interest-earning assets and interest-bearing liabilities positively increased net interest income by $14.8 million in the year ended December 31, 2022 compared to the same period in 2021, and changes in rates positively impacted net interest income by $18.9 million. Interest-sensitive assets totaling $4.3 billion will either reprice or mature over the next twelve months. The taxable equivalent yield on interest-earning assets was 3.79% for the year ended December 31, 2022, an increase of 36 basis points from the 3.43% yield for the same period in 2021. This change is primarily due to an increase in the yield on our adjustable and variable rate commercial loan portfolios, which increased by 89 basis points largely due to loans repricing in a rising interest rate environment. During 2022, the Federal Reserve increased short-term interest rates by 425 basis points. Also contributing to the increase in yield on interest-earning assets was the yield on the investment portfolio, which increased by 15 basis points compared to the prior year, primarily due to the increased rate environment. e yield on ff As of December 31, 2022, 43% of our loan portfolio had variable or adjustable interest rates and 57% had fixed interest rates. These percentages incorporate the impact of our cash flow hedges that convert the interest rate on $500.0 million of our 1- month LIBOR based loans to fixed rates. Without these cash flow hedges, the variable and adjustable interest rates would account for 49% of our loan portfolio and include approximately 32% tied to the prime interest rate, 18% tied to SOFR, 14% tied to LIBOR, 10% tied to Federal Home Loan Bank rates, 10% tied to Treasury rates, 9% tied to swap rates and 7% tied to BSBY. As of September 30, 2021, we discontinued originating loans tied to LIBOR and instead have used our pr . All LIBOR based loans are expected to be transitioned to a new index by June 30, eplacement rate of SOFR as well as BSBY. All LIBOR based loans are expected to be transitioned to a new index by June 30, l r 2023. eptember 30, 2021, we discontinued originating loans tied to LIBOR and instead have used our pr f eferred d ll f The loan yield for the year ended December 31, 2022 incr eased 27 basis points compared to December 31, 2021. This increase The loan yield for the year ended is a result of the previously mentioned increase in interest rates as well as growth in the loan portfolio. Average loans increased by $395.4 million during the period, despite a decrease of $292.1 million in average Paycheck Protection Program ("PPP") loans outstanding during the period. These loans were originated under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and had a stated loan rate of 1% and a yield of 12.9% and 7.4% for the years ended December 31, 2022 and December 31, 2021, respectively. The yield on PPP loans includes the recognition of PPP loan deferred processing fees, net of deferred origination costs, of $2.3 million for the year ended December 31, 2022 and $19.9 million for the year ended December 31, 2021. 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. At December 31, 2022, the balance of PPP loans outstanding totaled $4.3 million. PPP loans generated $2.7 million in income during the year ended December 31, 2022 and increased the yield on total loans and the net interest margin by 3 basis points and 2 basis points, respectively. During the year ended ff 31 December 31, 2021, PPP loans generated $23.2 million in income increasing both the loan portfolio yield and net interest margin by 16 basis points. ates were higher than The investment portfolio yield increased 15 basis points in comparison to the prior year as new vollume rates were higher than The investment portfolio yield increased 15 basis points in comparison to the prior year as new vo the portfolio yields. The average inves unded loan d d f li b l the portfolio yields. The average inves ggrowth. Additionally, the average balance of interest-bearing deposits with banks has decreased from $3 th. Additionally, the average balance of interest-bearing deposits with banks has decreased from $317.5 million in 2021 $188.4 million in 2022 as this liquidity was used to fund loan growth. The impact of the level and rate earned on interest- $188.4 million in 2022 as this liquidity was used to fund loan growth. The impact of the level and rate earned on interest- nings assets by 6 basis points for the year ended December 31, bearing deposits with banks increased the yield on interest-earnings assets by 6 basis points for the year ended December 31, bearing deposits with banks increased the yield on interest-ear 2022. tment portfolio balance decreased $113.0 million as maturities and runoff f d d l ff f fff .5 million in d $ illi i i to Increases in the cost of interest-bearing liabilities partially offset the positive impact of higher yields on interest-earning assets. The cost of interest-bearing liabilities was 0.31% for the year-ended December 31, 2022, compared to 0.27% for the same period in 2021. Higher market interest rates resulted in the cost of interest-bearing deposits increasing 2 basis points and short- term borrowings increasing 130 basis points in comparison to the same period in the prior year. Average short-term borrowings increased by $25.0 million for the year ended December 31, 2022 compared to the same period in 2021. Average long-term debt decreased $19.2 million, while the cost of long-term debt increased by 26 basis points due to the maturity of lower costing borrowings and increasing rates on the variable rate portion of the subordinated debentures. Comparing the year ended December 31, 2022 with the same period in 2021, changes in rates positively impacted net interest income by $18.9 million. The higher yield on interest-earning assets increased net interest income by $22.6 million, while the change in the cost of interest-bearing liabilities negatively impacted net interest income by $3.7 million. Changes in the volume of interest-earning assets and interest-bearing liabilities positively increased net interest income by $14.8 million in the year ended December 31, 2022 compared to the same period in 2021. Higher levels of interest-earning assets resulted in an increase of $13.5 million in interest income, and changes in the volume and mix of interest-bearing liabilities decreased interest expense by $1.3 million, primarily due to decreases in long-term borrowings and time deposits. Positively affecting net interest income was a $85.5 million increase in average net free funds at December 31, 2022 as compared to December 31, 2021. Average net free funds are the excess of noninterest-bearing demand deposits, other noninterest-bearing liabilities and shareholders’ equity over noninterest-earning assets. The largest component of the increase in net free funds was a $128.1 million increase in average noninterest-bearing demand deposits. Average time deposits for the year ended December 31, 2022 decreased $96.8 million, or 22%, compared to the comparable period in 2021, while the average rate paid on time deposits decreased 15 basis points. Over the next twelve months, $230.6 million in certificates of deposits are scheduled to mature. The following table reconciles interest income in the Consolidated Statements of Income to net interest income adjusted to a ff fully taxable equivalent basis for the periods presented: For the Years Ended December 31, 2022 2021 2020 (dollars in thousands) Interest income per Consolidated Statements of Income $ 329,953 $ 293,838 $ 301,209 Adjustment to fully taxable equivalent basis Interest income adjusted to fully taxable equivalent basis (non-GAAP) Interest expense Net interest income adjusted to fully taxable equivalent basis (non-GAAP) 1,049 331,002 17,732 1,100 294,938 15,297 $ 313,270 $ 279,641 $ 1,462 302,671 32,938 269,733 32 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 2022 2021 2020 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 Assets Interest-earning assets: Interest-bearing deposits with banks Tax-free investment securities Taxable investment securities Loans and leases, 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: a Interest-bearing demand deposits (d) Savings deposits (d) Time deposits Short-term borrowings Long-term debt Total interest-bearing liabia lities Noninterest-bearing liabilities and shareholders’ equity: Noninterest-bearing demand deposits (d) Other liabia lities Shareholders’ equity Total noninterest-bearing ff fundi ng sources Total Liabilities and Shareholders’ Equity Net Interest Income and Net Yield on Interest-Earning Assets $ 188,370 $ 1,722 0.91 % $ 317,493 $ 606 25,545 303,129 331,002 2.63 1.88 4.23 3.79 23,060 1,355,836 7,172,624 8,739,890 111,554 (94,912) 818,701 835,343 $ 9,575,233 400 753 28,139 1,463,785 25,244 6,777,192 8,586,609 268,541 294,938 94,949 (101,399) 813,905 807,455 $ 9,394,064 0.13 % $ 179,180 $ 218 0.12 % 1,333 24,749 276,371 302,671 3.01 2.12 4.10 3.72 2.68 1.72 3.96 3.43 44,308 1,167,316 6,737,339 8,128,143 97,632 (76,705) 825,510 846,437 $ 8,974,580 $ 1,596,197 $ 1,376 0.09 % $ 1,529,697 $ 434 0.03 % $ 1,525,195 $ 1,843 0.12 % 3,374,638 352,622 144,834 181,724 4,145 1,193 1,999 9,019 0.12 0.34 1.38 4.96 3,282,307 449,452 119,801 200,961 3,111 2,204 99 9,449 0.09 0.49 0.08 4.70 3,027,016 726,702 142,634 233,701 9,966 10,163 704 10,262 0.33 1.40 0.49 4.39 5,650,015 17,732 0.31 5,582,218 15,297 0.27 5,655,248 32,938 0.58 2,708,580 147,871 1,068,767 3,925,218 2,580,460 130,007 1,101,379 3,811,846 2,101,412 140,612 1,077,308 3,319,332 $ 9,575,233 $ 9,394,064 $ 8,974,580 $ 313,270 3.58 % $ 279,641 3.26 % $ 269,733 3.32 % Income on interest-earning assets has been computed on a fully taxable equival 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 feff es. (d) Average balances do not include reallocations from noninterest-bearing demand deposits and interest-bearing demand deposits into savings deposits ent basis using the federal income tax statutory rate of 21%. ff which were made for regulatory purposes. Includes held for sale loans. (e) 33 The following table sets forth certain information regarding changes in net interest income attributable to changes in the volume of interest-earning assets and interest-bearing liabilities and changes in the rates for the periods indicated: Analysis of Year-to-Year Changes in Net Interest Income 2022 Change from 2021 2021 Change from 2020 Total Change Change Due To Volume Change Due To Rate (a) Total Change Change Due To Volume Change Due To Rate (a) (dollars in thousands) Interest-earning assets: Interest-bearing deposits with banks Tax-free investment securities Taxable investment securities Loans and leases Total interest income (b) Interest-bearing liabilities: Interest-bearing demand deposits Savings deposits Time deposits Short-term borrowings Long-term debt Total interest expense Net interest income $ 1,322 $ (168) $ 1,490 $ 182 $ 166 $ 16 (147) 301 34,588 36,064 942 1,034 (1,011) 1,900 (430) 2,435 (136) (1,857) 15,659 13,498 20 83 (474) 20 (904) (1,255) (11) 2,158 18,929 22,566 922 951 (537) 1,880 474 3,690 (580) 495 (7,830) (7,733) (1,409) (6,855) (7,959) (605) (813) (17,641) (487) 6,285 1,634 7,598 5 842 (3,882) (112) (1,437) (4,584) $ 33,629 $ 14,753 $ 18,876 $ 9,908 $ 12,182 $ (93) (5,790) (9,464) (15,331) (1,414) (7,697) (4,077) (493) 624 (13,057) (2,274) (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. f Provision for Credit Losses 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 and lease 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 is a result of management's estimate of credit losses over the contractual life of the loan and lease portfolio. The change in the allowance for credit is impacted by estimated expected losses in the portfolio determined by a discounted cas h flow analys ff calculated probability of default and loss given default estimates and forecasts for certain macroeconomic variables, such as unemployment, gross domestic product and the housing price index as well as other macroeconomic variables. is considering inputs such as contractual payment schedules, prepayment estimates, historical loss experience, ff The provision for credit losses on loans and leases for 2022 totaled $17.5 million, an increase of $17.9 million compared to the $0.4 million negative provision recognized in 2021. The level of provision expense for the year ended December 31, 2022 is primarily a result of loan growth and changes in the economic forecast. The provision for credit losses was also impacted by a decrease of $0.3 million in reserves on individually analyzed loans. Contributing to the increase in provision for credit losses was a $4.6 million increase in expense related to higher reserves for off-balance sheet commitments. ff Provision expense for the commercial, financial, agricultural and other category was impacted by net charge-offs of $2.0 million, as well as an increase of $38.3 million in outstanding balances. Provision expense for the commercial real estate category was impacted by $1.7 million in net charge-offs offset by an increase in general reserves due to $173.9 million in loan growth. Contributing to the negative provision for commercial real estate is the releas e of the remaining COVID-19 qualitative reserves which were established at the beginning of the pandemic. These reserves have been released as the risk of the COVID-19 pandemic on the loan portfolio declined. Increase in the residential real estate category is due primarily to $274.4 million in loan growth, slowing prepayment speeds and an annual review of loss history data used in the allowance for credit loss model. Net charge-offs related to loans to individuals were $3.3 million for the year ended December 31, 2022, including $1.9 million for indirect auto loans and $1.0 million related to other consumer loans. The provision expense for loans to individuals was also impacted by growth in the portfolio of $297.7 million and the impact of the annual review of loss history data used in the allowance model. ff ff 34 The table below provides a breakout of the provision for credit losses by loan category for the years ended December 31: Commercial, financial, agricultural and other $ Time and demand Commercial credit cards Equipment Finance Time and demand other Real estate construction Construction other Construction residential Residential real estate Residential fiff rst liens Residential junior liens/home equity Commercial real estate Multifaff mily Nonowner occupied Owner occupied Loans to individuals Automobile and recreational vehicles Consumer credit cards Consumer other Provision for credit losses on loans and leases Provision for of fff -ff balance sheet credit exposure ff Total provision for credit losses $ $ 2022 2021 Dollars Percentage Dollars Percentage (dollars in thousands) 6,524 5,265 234 1,086 (61) 4,593 3,073 1,520 8,939 7,396 1,543 (2,854) 1,165 (6,918) 2,899 319 (721) 327 713 17,521 3,585 21,106 37 % $ 30 1 6 — 26 17 9 51 42 9 (16) 7 (40) 17 2 (4) 2 4 100 % $ 5,496 5,441 55 (1,458)% (1,443) (15) (3,892) 1,032 (1,892) (737) (1,155) (7,053) (2,678) (2,145) (2,230) 6,964 6,035 215 714 (377) (999) 502 196 306 1,871 710 569 592 (1,847) (1,601) (57) (189) 100 % $ (1,376) The provision expense for the year ended December 31, 2021 totaled a $0.4 million negative provision and primarily was a result of $8.4 million in net charge-offs offsff et by a decrease in the allowance for credit losses due to improvement in the economic forecast as compared to the prior year which included a higher level of uncertainty and risks related to the COVID-19 pandemic. Also impacting provision expense in 2021 was a decrease of $4.5 million on individually analyzed loans. The allowance for credit losses was $102.9 million, or 1.35%, of total loans outstanding at December 31, 2022, compared to $92.5 million, or 1.35%, at December 31, 2021. Nonperforming loans as a percentage of total loans decreased to 0.46% at December 31, 2022 from 0.81% at December 31, 2021. The allowance to nonperforming loan ratio was 290.0% as of December 31, 2022 and 167.7% at December 31, 2021. Net charge-offs were $7.1 million for the year-end compared to $8.4 million for the same period in 2021. ed December 31, 2022 ff Upon adoption of CECL at January 1, 2020, the provision for credit los ff 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 $3.6 million f ff 2022 compared to a negative provision of $1.0 million for the year ended December 31, 2021. ses on off-balance sheet credit exposures are recorded as or the year ended December 31, ff Management believes that the allowance for credit losses is at a level deemed appropriate to absorb expected losses inherent in the loan portfolio at December 31, 2022. 35 A detailed analysis of our credit loss experience for the previous five years is shown below: Loans and leases outstanding at end of year $ 7,642,143 $ 6,839,230 $ 6,761,183 $ 6,189,148 $ 5,774,139 2022 2021 2020 2019 2018 (dollars in thousands) $ 7,172,624 $ 6,777,192 $ 6,737,339 $ 5,987,398 $ 5,582,651 Average loans outstanding Balance, beginning of year Adoption of accounting standard - ASU 2016-13 Loans charged off:ff Commercial, financial, agricultural a ff nd other Real estate construction Residential real estate Commercial real estate Loans to individuals Total loans charged off Recoveries of loans previously charged off: Commercial, financial, agricultural and other Real estate construction Residential real estate Commercial real estate Loans to individuals Total recoveries Net charge-offs Provision charged to expense Balance, end of year Ratios: $ 92,522 $ 101,309 $ — 2,361 — 339 2,487 4,658 9,845 394 9 187 769 1,349 2,708 7,137 17,521 — 7,020 9 309 1,659 4,061 13,058 2,430 155 468 135 1,460 4,648 8,410 (377) 51,637 13,393 6,318 — 1,040 4,939 6,953 $ 47,764 $ 48,298 — 3,393 — 1,042 2,008 5,831 — 5,294 — 1,313 3,930 4,576 19,250 12,274 15,113 314 26 414 312 991 2,057 17,193 53,472 326 158 315 189 626 1,614 10,660 14,533 51,637 $ 788 141 361 153 605 2,048 13,065 12,531 47,764 $ 102,906 $ 92,522 $ 101,309 $ Net charge-offs as a percentage of average loans and leases outstanding Allowance for credit losses as a percentage of end-of-period loans and leases outstanding Allowance for credit losses as a percentage of end-of-period loans and leases outstanding, excluding PPP loans 0.10 % 0.12 % 0.26 % 0.18 % 0.23 % 1.35 % 1.35 % 1.50 % 0.83 % 0.83 % 1.35 % 1.37 % 1.61 % 0.83 % 0.83 % 36 Noninterest Income The components of noninterest income for each year in the three-year period ended December 31 are as follows: ff 2022 2021 2020 $ Change % Change 2022 compared to 2021 (dollars in thousands) Noninterest Income: Trust income Service charges on deposit accounts Insurance and retail brokerage commissions Income frff om bank owned life insurance Card related interchange income ff Swap fee income Other income Subtotal Net securities gains Gain on sale of mortgage loans Gain on sale of other loans and assets Derivative mark to market $ $ 10,518 19,641 $ 11,111 17,984 $ 9,101 16,387 8,857 8,502 7,850 5,459 27,603 4,685 10,263 87,026 2 5,276 6,036 368 6,433 27,954 2,543 8,185 82,712 16 13,555 8,130 2,344 6,552 23,966 1,588 7,892 73,336 70 18,764 4,827 (2,521) Total noninterest income $ 98,708 $ 106,757 $ 94,476 $ (593) 1,657 355 (974) (351) 2,142 2,078 4,314 (14) (8,279) (2,094) (1,976) (8,049) (5)% 9 4 (15) (1) 84 25 5 (88) (61) (26) (84) (8)% Noninterest income, excluding net securities gains, gain on sale of mortgage loans, gain on sale of other loans and assets and the derivatives mark to market, increased $4.3 million, or 5%, in 2022. Swap fee income increased $2.1 million due to an increase in interest rate swaps entered into for our commercial customers. Other income increased $2.1 million primarily due to income related to limited partnership investments. Service charges on deposit accounts increased $1.7 million as customer activity began to return to pre-COVID levels. Income from bank owned life ins recognition of benefits during 2021 with no similar benefits in 2022, card related interchange income decreased $0.4 million due to a decline in transactions, and trust income decreased $0.6 million due to declines in the values of assets under management, all of which offset the aforementioned growth. urance decreased $1.0 million due to the rr ff Total noninterest income decreased $8.0 million, or 8%, in comparison to the year ended December 31, 2021. The most significant change, other than the changes noted above, includes a decrease of $8.3 million in gain on sale of mortgage loans due to a decline in volume and spread received on mortgage loans sold. The mark to market adjustment on interest rate swaps entered into for our commercial loan customers decreased $2.0 million. This adjustment does not reflect a realized gain or 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. Gain on sale of other loans and assets decreased $2.1 million due to a decrease in the sale of other loans, primarily SBA loans, in comparison to the prior year. If the Company's total assets would equal or exceed $10 billion, as of the end of the previous calendar year, 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 would have decreased interchange income by approximately $14.1 million in 2022. First Commonwealth's total assets are expected to exceed $10 billion as of December 31, 2023, and as such, we expect to become subject to the interchange fee cap beginning July 1, 2024. 37 Noninterest Expense p The components of noninterest expense for each year in the three-year period ended December 31 are as follows: 2022 2021 2020 $ Change % Change 2022 compared to 2021 (dollars in thousands) Noninterest Expense: Salaries and employee benefits Net occupancy Furniture and equipment Data processing r Advertising and promotion Pennsylvania shares tax Intangible amortization Other professional fees and services FDIC insurance ff 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 $ $ 126,031 18,037 15,582 13,922 5,031 4,447 3,196 4,894 2,871 30,701 224,712 343 2,834 1,702 151 — (104) $ 119,506 16,586 15,642 12,373 4,983 4,604 3,497 4,501 2,529 26,663 210,884 303 2,324 — 449 — (103) $ 118,961 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 2,672 6,525 1,451 (60) 1,549 48 (157) (301) 393 342 4,038 13,828 40 510 1,702 (298) — (1) Total noninterest expense $ 229,638 $ 213,857 $ 215,826 $ 15,781 5 % 9 0 13 1 (3) (9) 9 14 15 7 13 22 — (66) 100 1 7 % Total noninterest expense increased $15.8 million, or 7%, compared to the year ended December 31, 2021. Contributing to the change is the recognition of $1.7 million in merger and acquisition related expenses for the acquisition of Centric. Also contributing to the increase in noninterest expense is a $6.5 million increase in salaries and employee benefits due to annual merit increases and salary adjustments. Net occupancy increased $1.5 million due to higher building repairs and maintenance costs. Data processing costs increased $1.5 million due to continued investment in our digital banking and other product offerings. Contributing to the $4.0 million increase in other operating expenses were several expense categories, including travel, interview and placement, subscriptions and credit reporting expenses, none of which were individually significant. IncomII e TaxTT The provision for income taxes of $32.0 million in 2022 reflects a decrease of $2.6 million compared to the provision for income taxes in 2021, as a result of a $12.6 million decrease in the level of income before taxes. ff The effff ective tax rate was 20.0% for tax expense in both 2022 and 2021. We ordinarily gener ate an annual effective tax rate that is less than the statutory rate due to benefits resulting from tax-exempt interest, income from bank owned life insurance, and tax ff benefits associated with low income housing tax credits, all of which are r income. elatively consistent regardless of the level of pretax Financial Condition First Commonwealth’s total assets increased $260.6 million as of December 31, 2022 compared to December 31, 2021. Loans, including loans held for sale, increased $796.2 million, or 12%. Loan growth in 2022 was experienced in all loan categories, with loans to individuals and residential real estate loans accounting for a majority of the growth. Investment securities decreased $358.9 million, or 23% and cash and interest-bearing balances with banks decreased $241.1 million, or 61%, as these ff funds pr ovided liquidity necessary to fund the strong loan growth. First Commonwealth’s total liabilities increased $317.9 million, or 4%, in 2022. Deposits increased $23.0 million and short- term borrowings increased $234.4 million, or 169%. The increase in short-term borrowings provided the liquidity necessary to fund loan growth. Also impacting total liabilities in 2022, was a $55.1 million increase in the fair value of interest rate swaps ff due to changes in the interest rate environment. rr 38 Total shareholders' equity decreased $57.3 million in 2022. The decline in shareholders' equity was the result of net income of $128.2 million, offset by a $128.9 million decrease in accumulated other comprehensive income, $44.6 million in dividends declared and $15.6 million in stock repurchases. Loan and Lease Portfolio f Following is a summary of our loan and lease portfolio as of December 31: 2022 2021 2020 2019 2018 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 Total loans and leases $ 1,211,706 16 % $ 1,173,452 17 % $ 1,555,986 23 % $ 1,241,853 20 % $ 1,138,473 20 % 513,101 2,194,669 2,425,012 1,297,655 7 29 31 17 494,456 1,920,250 2,251,097 999,975 7 28 33 15 427,221 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 $ 7,642,143 100 % $ 6,839,230 100 % $ 6,761,183 100 % $ 6,189,148 100 % $ 5,774,139 100 %% The loan and lease portfolio totaled $7.6 billion as of December 31, 2022, reflecting growth of $802.9 million, or 12%, compared to December 31, 2021. All categories experienced loan growth. ff Commercial, financial, agricultural and other loans increased $38.3 million, or 3%, as a result of growth in this category exceeding runoff of $67.0 million in PPP loans. As of December 31, 2022, PPP loans totaled $4.3 million compared to $71.3 million at December 31, 2021. In the first quarter of 2022, we entered the equipment leasing and finance bus accounted for $79.7 million of the growth in this category iness, which ff Residential real estate loans increased $274.4 million, or 14%, primarily due to originations of first lien closed-end 1-4 family mortgage loans. Growth in the loans to individuals category of $297.7 million, or 30%, was the result of growth in indirect auto and recreational vehicle loans. Commercial real estate loans increased $173.9 million, or 7%, primarily due to growth in owner occupied properties. The majority of our loan and lease portfolio is with borrowers located in the states of Pennsylvania and Ohio. As of December 31, 2022 and 2021, 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, 2022 were as follows: ff 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 Within One Year One to 5 Years After 5 Years $ 200,868 120,788 300,109 5,772 (dollars in thousands) 579,709 202,883 847,448 24,161 $ $ 350,753 72,535 1,277,500 119,361 Total 1,131,330 396,206 2,425,057 149,294 627,537 $ 1,654,201 $ 1,820,149 $ 4,101,887 $ $ 317,863 1,336,338 301,166 1,518,983 $ 1,654,201 $ 1,820,149 (a) The maturities of real estate construction loans include term commitments that follow the construction period. Loans with these term commitments will be moved to the commercial real estate category when the construction phase of the project is completed. First Commonwealth has a legal lending limit of $165.1 million to any one borrower or closely related group of borrowers, but has established lower thresholds for credit risk management. 39 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 ter ms have been renegotiated to provide a reduction rr or deferral of principal or interest as a result of the deteriorating financial position of the borrower under terms not available in the market. We discontinue interest accruals on a loan when, based on current information and events, it is probable that we will be unable to fully collect principal or interest due according to the contractual terms of the loan. 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 significantly weakened financial condition or principal and interest is 90 days or more delinquent. Interest received on a nonaccrual loan is normally applied as a reduction to loan principal rather than interest income utilizing the cost recovery methodology of revenue recognition. 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 fair value of any underlying collateral and the present value of projected future cash flows. Losses are recognized when a loss is expected and the amount is reasonably estimable. 40 The following is a comparison of nonperforming assets and the effects on inter December 31: ff est due to nonaccrual loans for the period ended p g Nonperforming Loans: Loans on nonaccrual basis Loans held for sale on nonaccrual basis Troubled debt restructured loans on nonaccrual basis Troubled debt restructured loans on accrual basis Total nonperforming loans Loans and leases past due in excess of 90 days and still accruing Other real estate owned Loans and leases outstanding at end of period Average loans and leases outstanding Nonperforming loans as a percentage of total loans and leases Provision for credit losses on loans and leases Allowance for credit losses Net charge-offs Net charge-offs as a percentage of average loans and leases outstanding Provision for credit losses on loans and leases as a percentage of net charge-offs Allowance for credit losses as a percentage of end-of-period loans and leases outstanding (a) Allowance for credit losses as a percentage of end-of-period loans and leases outstanding, excluding PPP loans (a) Allowance for credit losses as a percentage of nonperforming loans (a) Gross income that would have been recorded at original rates Interest that was reflected in income Net reduction to interest income due to nonaccrual 2022 2021 2020 2019 2018 (dollars in thousands) $ 20,193 $ 34,926 $ 30,801 $ 18,638 $ 11,509 — 8,852 6,442 35,487 1,991 534 $ $ $ — 13,134 7,120 55,180 1,606 642 13 14,740 8,512 54,066 1,523 1,215 — 6,037 7,542 32,217 2,073 2,228 — 11,761 8,757 32,027 1,582 3,935 $ $ $ $ $ $ $ $ $ $ $ $ $ 7,642,143 $ 6,839,230 $ 6,761,183 $ 6,189,148 $ 5,774,139 $ 7,172,624 $ 6,777,192 $ 6,737,339 $ 5,987,398 $ 5,582,651 0.46 % 0.81 % 0.80 % 0.52 % 0.55 % $ $ $ 17,521 102,906 7,137 $ $ $ (377) 92,522 8,410 $ $ $ 53,472 101,309 17,193 $ $ $ 14,533 51,637 10,660 $ $ $ 12,531 47,764 13,065 0.10 % 0.12 % 0.26 % 0.18 % 0.23 % 245.50 % (4.48)% 311.01 % 136.33 % 95.91 % 1.35 % 1.35 % 1.50 % 0.83 % 0.83 % 1.35 % 1.37 % 1.61 % 0.83 % 0.83 % 289.98 % 167.67 % 187.43 % 160.28 % 149.14 % $ $ 1,444 244 1,200 $ $ 3,503 569 2,934 $ $ 3,733 297 3,436 $ $ 1,860 262 1,598 $ $ 1,428 256 1,172 (a) End of period loans and nonperforming loans exclude loans held for sale. Nonperforming loans decreased $19.7 million to $35.5 million at December 31, 2022, compared to $55.2 million at December 31, 2021. Nonperforming loans as a percentage of total loans decreased to 0.46% from 0.81% at December 31, 2022 compared to December 31, 2021. 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 un available in the market. TDRs decreased $5.0 million during 2022. For additional information on TDRs please refer to Note 9 “Loans and Leases and Allowance for Credit Losses.” der terms not ff Net charge-offs were $7.1 million in 2022 compared to $8.4 million for the year 2021. The most significant credit losses recognized during the year include $2.5 million in charge-offs recognized on six commercial real estate relationships. Net charge-offs in the loans to individuals category totaled $3.3 million for 2022, primarily due to charge-offs of indirect auto loans. 41 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.” Provision for credit losses on loans and leases as a percentage of net charge-offs increased to a 245.5% for the year ended December 31, 2022 from a negative 4.5% for the year ended December 31, 2021. This change was not driven by net charge- offs, but rather an increase in the provision for loan credit losses on loans. This increased provision in 2022 is primarily a result ff of loan growth and changes in the economic forecast used in calculating the allowance. Allowance for Credit Losses f Following is a summary of the allocation of the allowance for credit losses at December 31: 2022 2021 2020 2019 2018 Allowance Amount % (a) Allowance Amount % (a) Allowance Amount % (a) Allowance Amount % (a) Allowance Amount % (a) (dollars in thousands) $ 22,650 16 % $ 18,093 17 % $ 17,187 23 % $ 20,234 20 % $ 19,374 20 % 8,822 21,412 28,804 21,218 7 29 31 17 4,220 12,625 33,376 24,208 7 28 33 15 7,966 14,358 41,953 19,845 6 26 33 12 2,558 4,093 19,768 4,984 7 27 34 12 2,002 3,969 18,386 4,033 6 27 37 10 $ 102,906 $ 92,522 $ 101,309 $ 51,637 $ 47,764 Commercial, financial, agricultural and other Real estate construction Residential real estate Commercial real estate Loans to individuals Total ff Allowance for cr percentage of end-of-ff period loans outstanding edit losses as 1.35 % 1.35 % 1.50 % 0.83 % 0.83 % ff Allowance for cr edit losses as a percentage of end-of-period loans and leases outstanding, excluding PPP loans 1.35 % 1.37 % 1.61 % 0.83 % 0.83 % (a) Represents the ratio of loans in each category to total loans. ff Effff ective January 1, 2020, the company adopted the CECL method provides for expected losses over the life of a loan. Prior periods are reported in accordance with previously applicable GAAP and was calculated to provide for credit losses as they were incurred. ology of calculating the allowance for credit losses which The allowance for credit losses increased $10.4 million from December 31, 2021 to December 31, 2022. The allowance for credit losses as a percentage of end-of-period loans outstanding was 1.35% at both December 31, 2022 and 2021. The allowance for credit losses includes both a general reserve for performing loans and reserves for individually analyzed loans. Comparing December 31, 2022 to December 31, 2021, the general reserve for performing loans is 1.34% and 1.36%, respectively, of total performing loans for both periods. Reserves for individually analyzed loans increased from 0.7% of nonperforming loans at December 31, 2021 to 2.0% of nonperforming loans at December 31, 2022. The allowance for credit losses as a percentage of nonperforming loans was 290.0% and 167.7% at December 31, 2022 and 2021, respectively. ff The allowance for credit losses represents management’s estimate of expected losses in the loan portfolio at a s 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 and loss given default estimates and forecasts of certain macroeconomic 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 for Credit Losses.” pecific point in ff II 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. 42 Following is a detailed schedule of the amortized cost of securities available for 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 es Other Government-Sponsored Enterpris Obligations of States and Political Subdivisions Corporate Securities rr Total Securities Available for Sale 2022 2021 2020 (dollars in thousands) $ $ $ 4,127 324,306 $ 5,242 365,024 6,492 182,823 527,777 632,687 1,000 9,482 1,000 9,538 32,010 898,702 $ 32,088 1,045,579 $ 481,109 100,996 11,154 22,941 805,515 As of December 31, 2022, securities available for s ale had a fair value of $0.8 billion. Gross unrealized gains were $0.3 million and gross unrealized losses were $136.3 million. The level of gross unrealized losses is directly related to the change in market interest rates. ff The following is a schedule of the contractual maturity distribution of securities available for sale at December 31, 2022. Within 1 year After 1 but within 5 years ff After 5 but within 10 years ff After 10 years ff Total U.S. Government Agencies and Corporations States and Political Subdivisions Other Securities Total Amortized Cost (a) Weighted Average Yield (b) $ 48 $ — $ 5,001 $ (dollars in thousands) 31,204 42,924 783,034 1,885 7,597 — 5,996 21,013 — $ 857,210 $ 9,482 $ 32,010 $ 5,049 39,085 71,534 783,034 898,702 3.28 % 2.23 2.36 1.72 1.80 % (a) Equities are excluded from this schedule because they have an indefinite maturity. (b) Yields are calculated on a taxable equivalent basis. Mortgage-backed securities, which include mortgage-backed obligations of U.S. Government agencies and obligations of U.S. , have contractual maturities ranging from less than one year to approximately 45 years and Government-sponsored enterprises have anticipated average lives to maturity ranging from less than three years to approximately six years. rr The available for sale investment portfolio amortized cost decreased $146.9 million, or 14%, at December 31, 2022 compared to 2021. Available for sale investment calls or maturities totaled $145.6 million during 2022. Liquidity provided from sales, calls and maturities was utilized to fund growth in the loan portfolio or reinvested into investment securities and interest- bearing deposits with banks. 43 Following is a detailed 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 Other Government-Sponsored Enterpris es rr Obligations of States and Political Subdivisions Debt Securities Issued by Foreign Governments Total Securities Held to Maturity 2022 2021 2020 (dollars in thousands) $ $ $ 2,008 75,229 $ 2,409 91,439 2,766 36,799 329,267 4,794 22,221 26,643 1,000 461,162 $ 387,848 7,309 21,904 29,402 1,000 541,311 $ 277,351 9,737 — 34,391 800 361,844 The following is a schedule of the contractual maturity distribution of securities held to maturity at December 31, 2022. 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) — $ 945 $ 4,794 42,684 386,041 9,019 16,116 563 $ 200 800 — — 433,519 $ 26,643 $ 1,000 $ $ $ 1,145 14,613 58,800 386,604 461,162 3.01 % 2.49 1.94 1.52 1.61 % The held to maturity investment portfolio decreased $80.1 million, or 15%, at December 31, 2022 compared to 2021. Held to maturity investment purchases of $0.2 million were offset by the calls or maturities of $79.6 million in investments. See Note 8 “Investment Securities" and Note 17 “Fair Values of Assets and Liabilities” for additional information related to the investment portfolio. 44 p Deposits Total deposits increased $23.0 million in 2022. Interest-bearing demand and savings deposits decreased $8.7 million, noninterest-bearing demand deposits increased $11.7 million and time deposits increased $20.0 million. For additional information concerning our deposits, please refer to Note 13 “I nterest-Bearing Deposits.” ff At December 31, 2022 and 2021, time deposits of $100 thousand or more totaled $172.0 million and $136.1 million, respectively. Time deposits of $250 thousand or more had remaining maturities as follows as of the end of each year in the two-year period ended December 31: 3 months or less Over 3 months through 6 months Over 6 months through 12 months Over 12 months Total 2022 2021 Amount % Amount % (dollars in thousands) $ $ 12,663 11,886 14,675 26,231 65,455 19 % $ 18 23 40 100 % $ 13,349 14,116 16,092 10,390 53,947 25 % 26 30 19 100 % The estimated total amount of uninsured deposits was $2.1 billion at both December 31, 2022 and 2021. Uninsured amounts are estimated based on known deposit account relationships for each depositor and insurance guidelines provided by the FDIC. g Short-Term Borrowings and Long-Term Debt g Short-term borrowings increased $234.4 million, or 169%, from $138.3 million at December 31, 2021 to $372.7 million at December 31, 2022. Long-term debt decreased $1.0 million, from $182.3 million at December 31, 2021 to $181.2 million at ff December 31, 2022. For additional information concerning our short-term borrowings, subordinated debentures and other long- term debt, please refer to N term Debt” of the Consolidated Financial Statements. ote 14 “Short-term Borrowings,” Note 15 “Subordinated Debentures” and Note 16 “Other Long- ff ff Contractual Obligations and Off-Balance Sheet Arrangements g g The table below sets forth our contractual obligations to make future payments as of December 31, 2022. 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 $ $ 740 $ 1,568 $ 1,693 $ 861 $ 4,862 — 4,952 — 9,400 — 8,157 170,937 35,244 170,937 57,753 5,692 $ 10,968 $ 9,850 $ 207,042 $ 233,552 The table above excludes our cash obligations upon maturity of certificates of deposit, which is set forth in Note 13 “Interest- Bearing Deposits” of the Consolidated Financial Statements. 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, 2022. 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 bo rrower will draw upon these commitments and often these commitments ff expire without being drawn upon. As of December 31, 2022, a reserve for expected credit losses of $10.0 million was recorded ff for unus ed commitments and letters of credit. Liquidity Liquidity refers to our ability to meet the cash flow requirements of depositors and borrowers as well as our operating cash needs with cost-effective funding. Liquidity risk arises from the possibility that we may not be able to meet our financial obligations and operating cash needs or may become overly reliant upon external funding sources. In order to manage this risk, our Board of Directors has established a Liquidity Policy that identifies primary sources of liquidity, establishes procedures for 45 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. ff ff 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 uch as the level of short-term and long-term market interest rates and influenced by factors outside of management’s control, s uch as money market mutual funds. Deposits increased $23.0 million during 2022, yields offff ered on competing investments, s and comprised 91% of total liabilities at December 31, 2022, as compared to 95% at December 31, 2021. Proceeds from the sale, maturity and redemption of investment securities totaled $225.2 million during 2022 and provided liquidity to fund loans, purchase investment securities and fund depositor withdrawals. ff 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, 2022 our borrowing capacity at the Federal Reserve related to this program was $1.0 billion and there were no amounts outstanding. Additionally, as of December 31, 2022, our maximum borrowing capacity at the Federal Home Loan Bank of Pittsburgh was $2.0 billion and as of that date amounts used against this capacity included $289.9 million 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, 2022, our maximum borrowing capacity under this program was $1.5 billion and as of that date there was $4.9 million outstanding. CDARS includes a wholesale and a reciprocal program. The reciprocal program allows our depositors to receive expanded FDIC coverage by placing multiple certificates of deposit at other CDARS member banks. The current outstanding balance in its entirety relates to the reciprocal program. As of December 31, 2022, our outstanding certificates of deposits from this program have an average weighted rate of 0.48% and an average original term of 364 days. We also have available unused federal funds lines with four correspondent banks. These lines have an aggregate commitment of $160.0 million and there were no amounts outstanding as of December 31, 2022. In addition, we have available unused repo lines with two correspondent banks. These lines have an aggregate commitment of $265.0 million with no outstanding balance as of December 31, 2022. 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 collectively totaled $52.6 million for the year ended December 31, 2022, as well as any cash necessary to repurchase our shares, which totaled $15.6 million for the year ended December 31, 2022. 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 $37.7 million at December 31, 2022. At the end of 2022, the Parent Company had a $20.0 million short-term, unsecured revolving line of credit with another financial institution. As of December 31, 2022, 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” within asset and liability products as certain borrowers have the option to prepay their loans when rates fall, while certain depositors can redeem or withdraw their deposits early when rates rise. 46 The process by which we manage our interest rate risk is called asset/liability management. The goals of our asset/liability management are increasing net interest income without taking undue interest rate risk or material loss of net market value of our equity, while maintaining adequate liquidity. Net interest income is increased by growing earning assets and increasing the difference between the rate earned on earning assets and the rate paid on interest-bearing liabilities. Liquidity is measured by the ability to meet both depositors’ and credit customers’ requirements. ff 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. N measure the exposure to earnings from changes in market rates of interest. Under simulation analys 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 runrr 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. et interest income simulations explicitly is, our current financial -off. The ALCO ff The following gap analysis compares the difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing over a period of time. The ratio of rate sensitive assets to rate sensitive liabilities repricing within a one-year period was 0.76 and 0.84 at December 31, 2022 and 2021, respectively. A ratio of less than one indicates a higher level of repricing liabilities over repricing assets over the next twelve months. The level of First Commonwealth's ratio is largely driven by the modeling of interest-bearing non-maturity deposits, which are included in the analysis as repricing within one year. Following is the gap analysis as of December 31: 2022 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 $ 3,164,495 $ 354,556 $ 575,640 $ 4,094,691 $ 2,498,042 $ 978,319 46,426 29,919 3,240,840 71,976 4,929,952 445,065 35,579 — 390,135 56,539 — 50,204 74,962 — 650,602 102,037 — 407 156,967 29,919 4,281,577 230,552 4,929,952 495,676 461,699 734,221 71 — 2,959,812 1,712,540 173,810 — 3,256 955 — 50,791 5,446,993 106,743 102,444 5,656,180 177,066 51,746 $ (2,206,153) $ 283,392 $ 548,158 $ (1,374,603) $ 2,782,746 $ 1,660,794 0.59 22.50 % 3.65 2.89 % 6.35 5.59 % 0.76 14.02 % 16.72 28.38 % 33.10 16.94 % Loans and leases Investments Other interest-earning assets Total interest-sensitive assets (ISA) Certififf cates of deposit Other deposits Borrowings Total interest-sensitive liabia lities (ISL) Gap ISA/ISL Gap/a Total assets 47 2021 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 $ 2,910,172 $ 394,048 $ 606,468 $ 3,910,688 $ 2,296,873 $ 555,022 98,969 310,629 3,319,770 97,269 4,938,673 210,682 82,267 — 476,315 72,453 — 200 154,316 — 760,784 106,243 — 400 335,552 310,629 725,576 516,766 — — 4,556,869 3,022,449 1,071,788 275,965 4,938,673 211,282 107,795 — 53,197 1,232 — 51,577 5,246,624 72,653 106,643 5,425,920 160,992 52,809 $ (1,926,854) $ 403,662 $ 654,141 $ (869,051) $ 2,861,457 $ 1,018,979 0.63 20.19 % 6.56 4.23 % 7.13 6.85 % 0.84 9.10 % 18.77 29.98 % 20.30 10.68 % Loans and leases Investments Other interest-earning assets Total interest-sensitive assets (ISA) Certififf cates of deposit Other deposits Borrowings Total interest-sensitive liabia lities (ISL) Gap ISA/ISL Gap/a Total assets Gap analysis has limitations due to the static nature of the model, which holds volumes and consumer behaviors constant in all economic and interest rate scenarios. A lower level of rate sensitive assets to rate sensitive liabilities repricing in one year could indicate reduced net interest income in a rising interest rate scenario, and conversely, increased net interest income in a declining interest rate scenario. However, the gap analysis incorporates only the level of interest-earning assets and interest- bearing liabilities and not the sensitivity each has to changes in interest rates. The impact of the sensitivity to changes in interest rates is provided in the table below. ff The following table presents an analysis of the potential sens interest rates over a 12-month time frame as compared with net interest income if rates remained unchanged and there are no changes in balance sheet categories. itivity of our annual net interest income to gradual changes in December 31, 2022 ($) December 31, 2022 (%) December 31, 2021 ($) December 31, 2021 (%) Net interest income change (12 months) for basis point movements of: ff -200 -100 +100 +200 (dollars in thousands) $ (11,973) $ (5,486) $ 5,902 (3.12)% (1.43)% 1.54 % $ (9,008) $ (4,976) $ 5,956 $ $ 11,413 2.98 % 10,224 (3.25)% (1.79)% 2.15 % 3.69 % The following table represents the potential sensitivity of our annual net interest income to immediate changes in interest rates as compared to if rates remained unchanged, assuming there are no changes in balance sheet categories. December 31, 2022 ($) December 31, 2022 (%) December 31, 2021 ($) December 31, 2021 (%) Net interest income change (12 months) for basis point movements of: ff -200 -100 +100 +200 (dollars in thousands) $ (45,361) $ (20,166) $ 18,626 (11.83)% (5.26)% 4.86 % $ (26,120) $ (17,640) $ 13,867 (9.42)% (6.36)% 5.00 % $ $ 36,011 9.39 % 29,192 10.53 % The analysis and model used to quantify the sensitivity of our net interest income becomes less meaningful in a decreasing 200 basis point scenario given the current interest rate environment. Results of the 100 and 200 basis point interest rate decline ff 48 scenario are affected by the fact that many of our interest-bearing liabilities are at rates below 1%, with an assumed floor of zero in the model. For the years 2022 and 2021, the cost of our interest-bearing liabilities averaged 0.31% and 0.27%, respectively, and the yield on our average interest-earning assets, on a fully taxable equivalent basis, averaged 3.79% and 3.43%, respectively. The ALCO is responsible for the identification and management of interest rate risk exposure. As such, the ALCO continuously evaluates strategies to manage our exposure to interest rate fluctuations. Asset/liability models require 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. Thes 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. e business assumptions are based upon our ff Credit Risk First Commonwealth maintains an allowance for credit losses at a level deemed sufficient for losses inherent in the loan and lease portfolio at the date of each statement of financial condition. Management reviews the appropriateness of the allowance on a quarterly basis to ensure that the provision for credit losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is appropriate based on management’s assessment of 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 $10.0 million at December 31, 2022 and is classified in “Other liabilities” on the Consolidated Statements of Financial Condition. ff Nonperforming loans include nonaccrual loans and loans classified as troubled debt restructurings. Nonaccrual loans repres 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 2022, five loans totaling $0.7 million were identified as troubled debt restructurings. These loans were individually analyzed and no additional reserves were required. ent ff ff 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 $102.9 million at December 31, 2022 or 1.35% of loans outstanding, compared to $92.5 million, or 1.35% of loans outstanding, at December 31, 2021. Credit measures as of December 31, 2022 compared to December 31, 2021 reflect a decrease in the level of criticized loans of $65.3 million, from $198.1 million at December 31, 2021 to $132.9 million at December 31, 2022. Commercial real estate loans accounted for $60.0 million of this decr Classified assets decreased $33.1 million, from $77.6 million at December 31, 2021 to $44.4 million at December 31, 2022. Delinquency on accruing loans decreased $9.4 million, or 90%, and the level of nonperforming loans decreased $19.7 million for the same period. ease. ff The allowance for credit losses as a percentage of nonperforming loans was 290.0% at December 31, 2022 and 167.7% as of December 31, 2021. The allowance for credit losses includes specific allocations of $0.7 million related to nonperforming loans covering 2% of the total nonperforming balance at December 31, 2022 and specific allocations of $0.4 million covering 1% of the total nonperforming balance at December 31, 2021. 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 and lease portfolio at December 31, 2022. 49 The following table provides information on net charge-offs and nonperforming loans by loan category: For the Period Ended December 31, 2022 As of December 31, 2022 % 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 (dollars in thousands) Commercial, financial, agricultural and other Real estate construction Residential real estate Commercial real estate Loans to individuals Total loans and leases, net of unearned income $ 1,967 27.56 % 0.03 % $ (9) 152 1,718 3,309 (0.13) 2.13 24.07 46.37 — — 0.02 0.05 4,309 — 9,145 21,505 528 12.14 % 0.05 % — 25.77 60.60 1.49 — 0.12 0.28 0.01 $ 7,137 100.00 % 0.10 % $ 35,487 100.00 % 0.46 % 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, 2022. See discussions related to the provision for credit losses and loans for more information. ff New Accounting Pronouncements ff In March 2020, FASB released Accounting Standards Update (“ASU”) 2020-04 - Reference Rate Reform (Topic 848), which provides optional guidance to ease the accounting burden in accounting for, or recognizing the effects from, refer reform on financial reporting. The new standard is a result of the discontinuance of the London Interbank Offered Rate ("LIBOR") as an available benchmark rate. The standard is elective and provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, or other transactions that reference LIBOR, or another reference rate expected to be discontinued. The Company has elected to apply the practical expedient allowing for a contract modification, due to reference rate reform, to be accounted for as a continuation of the existing contract and does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The amendments in the update are effective for all entities between March 12, 2020 and December 31, 2024 (In December 2022, FASB released ASU 2022-06, which extended the original sunset date in ASU 2020-04 from December 31, 2022 to December 31, 2024). The u Company has established a cross-functional working grou utilize LIBOR have been identified and have incorporated enhanced language to accommodate the transition to alternative referff ence rates and the use of LIBOR has been discontinued as an index for new loans. Allll LI BOR based loans are expected to be transitioned to a new index by June 30, 2023. The impact of the LIBOR transition is not expected to have a material impact be transitioned to a new index by June 30, 2023. The impact of the LIBOR transition is not expected to have a material impact on the Company's consolidated financial statements. on the Company's consolidated financial statements. s transition from LIBOR. Products that p to manage the Company’ ence rate d l d b ff ff In October 2021, FASB released ASU 2021-08 – “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”). ASU 2021-08 requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, “Revenue frff om Contracts with Customers.” ASU 2021-08 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The standard should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company is in the process of assessing the impact of adoption on its consolidated financial statements. ff In March 2022, FASB released ASU 2022-02 – “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”). ASU 2022-22 eliminates the accounting guidance for troubled debt restructurings (“TDRs”) while expanding modification and vintage disclosure requirements. Under the previous guidance a TDR occurs when a loan to a borrower experiencing financial difficulty is restructured with a concession provided that a creditor would not otherwise consider. ASU 2022-02 removes the TDR accounting model, instead requiring modifications to apply existing refinancing and restructuring guidance to determine if the modification results in a new loan or is a continuation of the existing one. The update also requires additional disclosures on the nature, magnitude and subsequent performance of certain types of modifications with borrowers experiencing financial difficulties. ASU 2022-02 further includes a requir ff to disclose gross charge-offs incurred by year of origination of the related loan or lease. ASU 2022-02 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. ASU 2022-02 is not expected to have a material impact on the Company's consolidated financial statements, but will result in additional disclosure requirements. ement 50 In December 2019, FASB issued ASU 2019-12 - "Simplifying the Accounting for Income Taxes". ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The company adopted the ASU in 2022 and had no material adjustments. 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. 51 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 $386,205 at December 31, 2022 and $536,651 at December 31, 2021) Other investments Loans held for sal ff e Loans and leases: Portfolff io loans and leases Allowance for credit losses Net loans and leases 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 2022 2021 (dollars in thousands, except share data) $ 124,254 $ 29,990 762,661 461,162 26,414 11,869 84,738 310,634 1,041,380 541,311 12,838 18,583 7,642,143 6,839,230 (102,906) (92,522) 7,539,237 6,746,708 115,106 120,775 534 303,328 9,205 222,651 199,255 642 303,328 11,188 224,700 128,268 $ 9,805,666 $ 9,545,093 $ 2,670,508 $ 2,658,782 5,334,961 8,005,469 372,694 170,937 4,862 5,425 181,224 194,205 5,323,716 7,982,498 138,315 170,775 5,573 5,921 182,269 132,639 8,753,592 8,435,721 Prefeff rred 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, 2022 and 2021; and 93,376,314 and 94,233,152 shares outstanding at December 31, 2022 and 2021, respectively Additional paid-in capia tal Retained earnings Accumulated other comprehensive (loss) income, net Treasury stock (20,538,588 and 19,681,750 shares at December 31, 2022 and 2021, respectively) Total shareholders’ equity Total liabilities and shareholders’ equity 113,915 497,431 774,863 (137,692) (196,443) 113,915 496,121 691,260 (8,768) (183,156) 1,052,074 1,109,372 $ 9,805,666 $ 9,545,093 The accompanying notes are an integral part of these Consolidated Financial Statements. 52 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME 2022 Years Ended December 31, 2021 (dollars in thousands, except share data) 2020 Interest Income Interest and feff es on loans and leases 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 Credit Losses Noninterest Income Net securities gains Trust income Service charges on deposit accounts Insurance and retail brokerage commissions Income frff om 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 profeff ssional feff es 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 $ 302,207 $ 267,599 $ 275,189 24,668 479 877 1,722 329,953 6,714 1,999 8,595 198 226 17,732 312,221 21,106 291,115 2 10,518 19,641 8,857 5,459 5,276 6,036 27,603 368 4,685 10,263 98,708 24,723 595 521 400 293,838 5,749 99 8,555 649 245 15,297 278,541 (1,376) 279,917 16 11,111 17,984 8,502 6,433 13,555 8,130 27,954 2,344 2,543 8,185 106,757 126,031 18,037 15,582 13,922 5,031 4,447 3,196 4,894 2,871 343 2,834 1,702 151 — (104) 30,701 229,638 160,185 32,004 128,181 93,612,043 93,887,447 1.37 1.37 0.475 $ $ $ $ 119,506 16,586 15,642 12,373 4,983 4,604 3,497 4,501 2,529 303 2,324 — 449 — (103) 26,663 213,857 172,817 34,560 138,257 95,583,890 95,840,285 1.45 1.44 0.455 $ $ $ $ $ $ $ $ 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 94,476 118,961 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 0.440 The accompanying notes are an integral part of these Consolidated Financial Statements. 53 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Net Income Other comprehensive (loss) income, before tax (benefit) expense: Unrealized holding (losses) gains on securities arising during the period Less: reclassification adjustment for gains on securities included in net income Unrealized losses on derivatives: Years Ended December 31, 2022 2021 2020 (dollars in thousands) $ 128,181 $ 138,257 $ 73,447 (131,838) (29,892) 19,981 (2) (16) (70) Unrealized holding losses on derivatives arising during the period (31,573) (3,356) (4,467) Unrealized gains (losses) for postretirement obligation: Prior service cost Net gain (loss) 76 143 76 275 (537) (155) Total other comprehensive (loss) income, before income tax (benefit) expense Income tax (benefit) expense related to items of other comprehensive (loss) income Comprehensive Income (163,194) (32,913) 14,752 (34,270) (6,912) $ (743) $ 112,256 $ 3,098 85,101 The accompanying notes are an integral part of these Consolidated Financial Statements. 54 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, 2021 94,233,152 $ 113,915 $ 496,121 $ 691,260 $ (8,768) $ (183,156) $ 1,109,372 Net income Total other comprehensive loss Cash dividends declared ($0.475 per share) Treasury stock acquired Treasury stock reissued Restricted stock 128,181 (44,578) (128,924) (1,132,577) 174,989 100,750 — 580 730 — — 128,181 (128,924) (44,578) (15,598) 2,192 1,429 (15,598) 1,612 699 Balance at December 31, 2022 93,376,314 $ 113,915 $ 497,431 $ 774,863 $ (137,692) $ (196,443) $ 1,052,074 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, 2020 96,130,751 $ 113,915 $ 494,683 $ 596,614 $ 17,233 $ (153,828) $ 1,068,617 Net income Total other comprehensive loss Cash dividends declared ($0.455 per share) Treasury stock acquired Treasury stock reissued Restricted stock 138,257 (43,611) (26,001) (2,195,110) 173,907 123,604 — 771 667 — — (31,301) 1,493 480 138,257 (26,001) (43,611) (31,301) 2,264 1,147 Balance at December 31, 2021 94,233,152 $ 113,915 $ 496,121 $ 691,260 $ (8,768) $ (183,156) $ 1,109,372 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 ($0.440 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 The accompanying notes are an integral part of these Consolidated Financial Statements. 55 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS 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 i Mortgage loans originated for sale Proceeds from sale of mortgage loans (Increase) decrease in interest receivable Increase (decrease) in interest payable (Decrease) increase in income taxes payable Other—net ff nsurance 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 redemption of other investments Proceeds from bank owned life ins ff urance Proceeds from the sale of loans Proceeds from sales of other assets Net increase in loans Purchases of premises and equipment Net cash used in investing activities Financing Activities Net increase in federal funds purchased Net increase (decrease) in other short-term borrowings Net increase in deposits Repayments of other long-term debt Repayments of capital lease obligations Dividends paid Proceeds from reissuance of treasury stock Purchase of treasury st ock r Net cash provided by financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at January 1 Cash and cash equivalents at December 31 Years Ended December 31, 2022 2021 2020 (dollars in thousands) $ 128,181 $ 138,257 $ 73,447 21,106 (2,011) 10,552 (11,556) 2,027 (5,261) (195,105) 198,302 (6,846) 1,172 (4,561) 15,413 151,413 — 79,613 (200) — 145,589 — (20,632) 7,056 — 5,337 68,625 8,609 (871,578) (11,207) (588,788) — 234,379 23,007 (712) (496) (44,578) 245 (15,598) 196,247 (241,128) 395,372 154,244 $ $ (1,376) 1,432 11,442 (22,273) 4,772 (6,105) (390,940) 419,574 5,885 (412) 10,664 (5,874) 165,046 — 120,728 (361,734) — 433,910 (676,861) (4,453) 3,342 500 7,357 76,414 7,798 (161,667) (10,639) (565,305) — 20,942 543,947 (50,685) (464) (43,611) 222 (31,301) 439,050 38,791 356,581 395,372 $ 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 The accompanying notes are an integral part of these Consolidated Financial Statements. 56 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 equired to make ff financial institutions in the United States of America. In preparing financial statements, management is r 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. ff 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. ff 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 an annual basis, using historical pr of default and loss given default information specific to the investment category. On a quarterly basis, a qualitative review is obability ff ff 57 completed incorporating changes to the mix and credit quality of the investment portfolio. 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. 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. ff 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 ("TDR") 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. TDR loans are considered to be nonperforming loans. ff 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 TDR loans. Expected losses on nonperforming loans are 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. ff ff ff 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. 58 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. ff 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. D epreciation is not recorded on the other real estate owned properties. ff Allowance for Credit Losses for Loans and Leases 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 and leases. ff 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. ff 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. In 2022, the annual review of loss history and loss drivers used in the allowance credit losses resulted in several new loan portfolio segments. Real estate construction, which was previously one segment, has been divided into two categories, Construction residential and Construction other. Loans to state and political subdivisions and other commercial loans that have different characteristics than loans in the Time and Demand category, were moved into a new Time and demand other category. rr Additionally, a new portfolio segment for equipment finance was added as we entered that business in 2022. Refer to Note 9, "Loans and Leases and Allowance for Credit Losses" for further discussion of these portfolio segments. ff 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 los s 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. ff ff All nonperforming credits, which includes nonaccrual loans and all TDRs, in excess of $250 thousand are individually hed for individually evaluated loans in an amount equal to the total evaluated on a quarterly basis. A specific reserve is establis 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 review ed. ff ff 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. ff 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 s 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 heet credit exposure includes commitments to extend credit, ff 59 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 ff 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-interes 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 $3.7 million and $4.5 million as of December 31, 2022 and 2021, respectively, and is reflected in "Other Liabilities" on the Consolidated Statements of Financial Condition. t income in the Consolidated 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 as well as buildings and improvements. Charges for maintenance and r ff term of the lease or the estimated useful life of the improvement, whichever is shorter. epairs are expensed as incurred. Leasehold improvements are expensed over the ff ff Software costs are amortized on a straight-line basis over a period not to exceed 7 years. ff 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 differff ence 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 fromff 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. 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 as sets ff rr ff 60 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,” ("Topic 740") whereby deferred tax assets and liabilities are recognized for the f ff 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 Topic 740, interest or penalties incurred for taxes will be recorded as a component of noninterest expense. uture tax consequences attributable to ff ff 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 def ff 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. ined benefit ff 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. ff Derivatives and Hedging Activities First Commonwealth accounts for derivative instruments and hedging activities in accordance with FASB ASC Topic 815, “Derivatives and Hedging" ("Topic 815"). 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. rr 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. rr ff r Management periodically reviews contracts from various functional ar derivatives embedded within selected contracts. As of December 31, 2022, 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. eas of First Commonwealth to identify potential ff ff r 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 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" ("Topic 820"), 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: 61 • • • 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 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, inter that include interest rate swaps, risk participation agreements and foreign currency contracts, certain other real estate owned and certain nonperforming loans. est rate derivatives ff rr 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. rr In general, fair values of financial instruments are based upon quoted market prices, where available. If s prices are not available, fair value is based upon pricing models that primarily use, as inputs, observable market-based ded at fair value. These parameters. Valuation adjustments may be made to ensure that financial instruments are recor adjustments may include amounts to reflect counter rr unobservable parameters. Any such valuation adjustments are applied consistently over time. See Note 17 “Fair Values of Assets and Liabilities” for additional information. party credit quality and our creditw uch quoted market orthiness, among other things, as well as ff ff 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 per ff 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. iodic basis or based on activity. ff Note 2—Acquisition On August 30, 2022, we entered into an agreement and plan of merger to acquire Centric Financial Corporation (“Centric”) and its banking subsidiary, Centric Bank. Centric will contribute seven full-service banking offices and one loan production office in the Harrisburg, Philadelphia and Lancaster MSAs. The acquisition is an all-stock transaction and Centric shareholders were entitled to receive a fixed exchange ratio of 1.09 shares of First Commonwealth common stock for each Centric common stock. This merger was completed after close of business January 31, 2023 resulting in the issuance of 9,688,478 shares of common stock. ff r 62 Unrealized gains (losses) on securities: Unrealized holding (losses) gains on securities arising during the period Reclassification adjustment for gains on securities included in net income Total unrealized (losses) gains on securities Unrealized gains (losses) on derivatives: Unrealized holding losses on derivatives arising during the period Total unrealized losses on derivatives Unrealized gains (losses) for postretirement obligations: Prior service cost Net gain (loss) Total unrealized gains (losses) for po obligations ff stretirement Note 3—Supplemental Comprehensive Income Disclosures ff The following table identifies the related tax effects allocated to each component of other comprehensive income in the 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. 2022 2021 2020 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) $ (131,838) $ 27,686 $ (104,152) $ (29,892) $ 6,278 $ (23,614) $ 19,981 $ (4,196) $ 15,785 (2) — (2) (16) 3 (13) (70) 15 (55) (131,840) 27,686 (104,154) (29,908) 6,281 (23,627) 19,911 (4,181) 15,730 (31,573) 6,630 (24,943) (3,356) (31,573) 6,630 (24,943) (3,356) (16) (30) 60 113 76 275 76 143 219 705 705 (16) (58) (2,651) (4,467) (2,651) (4,467) 60 217 (537) (155) 938 938 113 32 (3,529) (3,529) (424) (123) (46) 173 351 (74) 277 (692) 145 (547) Total other comprehensive (loss) income $ (163,194) $ 34,270 $ (128,924) $ (32,913) $ 6,912 $ (26,001) $ 14,752 $ (3,098) $ 11,654 63 The following table details the change in components of OCI for the year ended December 31: 2022 Securities Available ff for Sale Derivatives Post-Retirement Obligation Accumulated Other Comprehensive Income (dollars in thousands) Balance at January 1 $ (3,317) $ (5,546) $ 95 $ (8,768) Other comprehensive loss before reclassification adjustment Amounts reclassified from accumulated other comprehensive income (loss) ff (104,152) (24,943) (2) — Prior service cost Net gain Net other comprehensive loss during the period (104,154) Balance at December 31 $ (107,471) $ (24,943) (30,489) $ 2021 (129,095) (2) 60 113 (128,924) (137,692) 60 113 173 268 $ Securities Available ff for Sale Derivatives Post-Retirement Obligation Accumulated Other Comprehensive Income (dollars in thousands) Balance at January 1 $ 20,310 $ (2,895) $ (182) $ 17,233 Other comprehensive income before reclassification adjustment Amounts reclassified from accumulated other comprehensive income (loss) ff (23,614) (13) (2,651) — Prior service cost Net gain Net other comprehensive income during the period Balance at December 31 (23,627) (3,317) $ $ (2,651) (5,546) $ (26,265) (13) 60 217 (26,001) (8,768) 60 217 277 95 $ 2020 Securities Available ff for Sale Derivatives Post-Retirement Obligation Accumulated Other Comprehensive Income (dollars in thousands) Balance at January 1 $ 4,580 $ 63 4 $ 365 $ Other comprehensive income before reclassification adjustment Amounts reclassified from accumulated other comprehensive income (loss) ff 15,785 (55) (3,529) — 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 64 Note 4—Supplemental Cash Flow Disclosures ff The following table presents information r non-cash investing and financing activities for the years ended December 31: elated to cash paid during the year for interest and income taxes as well as detail on Cash paid during the period for: Interest Income taxes Non-cash investing and financing activities: Loans transferred to other real estate owned and repossessed assets Fair value of loans transferred from held to maturity to held for sale Loans transferred from held for sale to held to maturity Gross (decrease) increase in market value adjustment to securities available for sale Gross decrease in market value adjustment to derivatives Investments committed to purchase, not settled Increase in limited partnership investment unfunff ded commitment Proceeds frff om death benefit on bank-owned life insurance not received Treasury shares issued Note 5—Earnings per Share 2021 2020 d (dollars in thousands) $ $ 16,396 ,326 34 $ 15,624 22,374 2,852 61 ,892 1,485 ) (131,840 4) (31,57 — — 1,973 1,947 3,163 73,697 — (29,90 8) (3,356) — 7, 565 — 2,042 33,964 25,914 3,865 37,305 4,335 19,911 (4,467) (34,185) — (384) 1,594 The following table summarizes the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation for the years ending December 31: 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 2022 2021 2020 113,914,902 113,914,902 113,914,902 (20,089,722) (18,140,857) (16,254,304) (55,734) (157,403) (55,590) (134,565) (42,751) (118,261) 93,612,043 95,583,890 97,499,586 219,584 200,712 203,836 55,820 55,683 55,543 93,887,447 95,840,285 97,758,965 $ $ 1.37 1.37 $ $ 1.45 1.44 $ $ 0.75 0.75 The following table shows the number of shares and the price per share related to common stock equivalents that were not included in the computation of diluted earnings per share for the years ended December 31, because to do so would have been anti-dilutive. 2022 Price Range 2021 Price Range 2020 Price Range Shares From To Shares From To Shares From To Restricted Stock Restricted Stock Units 128,860 25,983 $ $ 12.77 21.08 $ $ 16.43 21.08 99,344 $ 12.77 $ 15.96 92,499 — $ — $ — 106,931 $ $ 13.72 12.43 $ $ 15.44 15.37 65 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. Because balances held at the Federal Reserve earn interest, depending on our liquidity position, we may maintain balances in excess of the reserve requirement. First Commonwealth maintained average balances of $181.6 million during 2022 and $309.6 million during 2021 with the Federal Reserve Bank of Cleveland. Note 7—Derivatives Derivatives Not Designated as Hedging Instruments g g g 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. ff 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 35 risk participation agreements with financial institution counterparties for interest r ate swaps related to loans in which we are a participant. The risk participation agreements provide credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract with the financial institution. We have 15 risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are the lead bank. The risk participation agreement provides credit protection to us should the borrower fail to perform on its interest rate derivative contract with us. ff r 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 ff financial institution. The notional amount and the maximum and minimum inter identical. est rates on both interest collar contracts are 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 g g g rr 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 subor ff Therefore, the interest rate swaps convert the interest rate benchmark on the first $70.0 million of 3-month LIBO subordinated debentures to a fixed rate. dinated debentures benchmarked to the 3-month LIBOR rate. R based ff During 2021, the Company entered into eight interest rate swap contracts that were designated as cash flow hedges. The interest rate swaps have a total notional amount of $500.0 million; $75.0 million with an original maturity of three years, $250.0 million with an original maturity of four years, and $175.0 million with an original maturity of five years. The Company's risk management objective for these hedges is to reduce its exposure to variability in expected future cash flows related to interest payments on commercial loans benchmarked to the 1-month LIBOR rate. Therefore, the interest rate swaps convert the interest payments on the first $500.0 million of 1-month LIBOR based commercial loans into fixed rate payments. ff The periodic net settlement of these interest rate swaps are recorded as an adjustment to "Interest on subordinated debentures" or "Interest and fees on loans" in the Consolidated Statement of Income. For the years ended December 31, 2022 and 2020, net interest income decreased $4.8 million and $0.4 million, respectively, and increased $0.6 million for the year ended December 66 31, 2021 as a result of these interest rate swaps. Changes in the fair value of the cash flow hedges are reported on the balance sheet and in OCI. When the cash flows associated with the hedged item are realized, the gain or loss included in OCI is recognized in "Interest on subordinated debentures" or "Interest and fees on loans," in the Consolidated Statements of Income in the same line item as the income or expense on the hedged items. The cash flow hedges were highly effective at December 31, 2022 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 ff (“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, 2022 and 2021 was a decrease of $0.1 million and $0.5 million, respectively, and an increase of $0.4 million for the year ended December 31, 2020. 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 deliver 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, 2022, the underlying funded mortgage loan commitments had a carrying value of $4.3 million and a fair value of $4.0 million, while the underlying unfunded mortgage loan commitments had a notional amount of $12.0 million. At December 31, 2021, the underlying funded mortgage loan commitments had a carrying value of $11.0 million and a fair value of $11.9 million, while the underlying unfunded mortgage loan commitments had a notional amount of $29.7 million. y contracts by ff ff ff 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 years ended December 31, 2022 totaled $5 thousand, $11 thousand and $18 thousand, respectively. There were no foreign exchange forward contracts outstanding at December 31, 2022. At December 31, 2021, the underlying loans exposed to changes in foreign exchange rates had both a carrying value and a fair value of $2.0 million. ff 67 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 caps 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: Fair value adjustment Notional Amount Foreign exchange forwards: Fair value adjustment Notional Amount 2022 2021 (dollars in thousands) $ (27) $ (395) 816,745 15,340 35,354 256,043 (100,741) 12,009 708,759 66,007 35,354 241,111 (95,618) 29,691 (38,596) 570,000 (7,022) 570,000 63 16,000 — — (29) 38,000 12 1,982 The table below presents the amount representing the change in the fair value of derivative assets and der attributable to credit risk included in “Other income” on the Consolidated Statements of Income for the years ended December 31: ivative liabilities ff Non-hedging interest rate derivatives: (Decrease) increase in other income Hedging interest rate derivatives: (Decrease) increase in interest and fees on loans (Decrease) increase in interest from subordinated debentures Hedging interest rate forwards: (Decrease) increase in other income Hedging interest rate derivatives: Increase in other expense 2021 2020 (dollars in thousands) $ (363) $ 728 $ (981) (5,125) (283) (92) 5 1,567 959 (454) 11 — 449 420 18 The fair value of our derivatives is included in a table in Note 17, “Fair Values of Assets and Liabilities,” in the line items “Other assets” and “Other liabilities.” 68 Note 8—Investment Securities Securities Available for Sale Below is an analysis of the amortized cost and fair values of securities available for sale at December 31: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Amortized Cost (dollars in thousands) 2021 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 r Enterpris es: Mortgage-Backed Securities – Residential Other Government- Sponsored Enterprr ises Obligations of States and Political Subdivisions Corporate Securities Total Securities Availabla e for Sale ff $ 4,127 $ 37 $ (181) $ 3,983 $ 5,242 $ 420 $ — $ 5,662 324,306 — (52,890) 271,416 365,024 1,725 (4,459) 362,290 527,777 1,000 9,482 32,010 59 — — 179 (78,847) 448,989 632,687 6,308 (9,021) 629,974 (118) 882 1,000 (1,295) (2,985) 8,187 29,204 9,538 32,088 — 89 973 (19) (103) (112) 981 9,524 32,949 $ 898,702 $ 275 $(136,316) $ 762,661 $1,045,579 $ 9,515 $ (13,714) $1,041,380 rr . These obligations have contractual maturities ranging from less than one year to Mortgage backed securities include mortgage backed obligations of U.S. Government agencies and obligations of U.S. Government-sponsored enterprises approximately 40 years with lower anticipated lives to maturity due to prepayments. All mortgage backed securities contain a certain amount of risk related to the uncertainty of prepayments of the underlying mortgages. Interest rate changes have a direct impact upon prepayment speeds; therefore, First Commonwealth uses computer simulation models to test the average life and yield volatility of all mortgage backed securities under various interest rate scenarios to monitor the potential impact on earnings and interest rate risk positions. Expected maturities will differ from contractual maturities because issuers may have the right to call or repay obligations with or without call or prepayment penalties. Other fixed income securities within the portfolio also contain prepayment risk. The amortized cost and estimated fair value of debt securities available for sale at December 31, 2022, by contractual maturity, 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 Amortized Cost Estimated Fair Value (dollars in thousands) $ $ 5,001 8,881 28,610 — 42,492 856,210 898,702 $ $ 4,997 8,654 24,622 — 38,273 724,388 762,661 (a) Mortgage Backed Securities include an amortized cost of $328.4 million and a fair value of $275.4 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $527.8 million and a fair value of $449.0 million for Obligations of U.S. Government-sponsored enterprises issued by Fannie Mae and Freddie Mac. 69 Proceeds frff om sales of securities and gross gains (losses) realized on sales, calls and maturities of securities available for sale were as follows for the years ended December 31: Proceeds frff om sales Gross (losses) gains realized: Sales Transactions: Gross gains Gross losses Maturities Gross gains Gross losses Net gains 2022 2021 2020 (dollars in thousands) — $ — $ — $ — — 2 — 2 2 $ — $ — — 16 — 16 16 $ — — — — 70 — 70 70 $ $ $ Gross gains from maturities recognized in 2022, 2021 and 2020 were the result of calls on municipal securities. Securities available for sale with an approximate fair value of $626.7 million and $759.1 million were pledged as of December 31, 2022 and 2021, respectively, to secure public deposits and for other purposes required or permitted by law. 70 SS Securities Held to Maturity Below is an analysis of the amortized cost and fair values of debt securities held to maturity at December 31: 2022 2021 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 $ 2,008 $ — $ (224) $ 1,784 $ 2,409 $ 101 $ — $ 2,510 75,229 — (14,196) 61,033 91,439 305 (1,939) 89,805 329,267 — (53,002) 276,265 387,848 2,800 (5,758) 384,890 4,794 22,221 26,643 1,000 — — — — (129) 4,665 7,309 (4,501) 17,720 21,904 (2,865) 23,778 29,402 (40) 960 1,000 148 — 414 — — 7,457 (625) 21,279 (103) 29,713 (3) 997 $ 461,162 $ — $ (74,957) $ 386,205 $ 541,311 $ 3,768 $ (8,428) $ 536,651 Obligations of U.S. Government Agencies: Mortgage-Backed Securities – Residential Mortgage-Backed Securities – Commercial Obligations of U.S. Government-Sponsored rr Enterpris es: Mortgage-Backed Securities – Residential Mortgage-Backed Securities – Commercial Other Government- Sponsored Enterprr ises Obligations of States and Political Subdivisions Debt Securities Issued by Foreign Governments Total Securities Held to Maturity The amortized cost and estimated fair value of debt securities held to maturity at December 31, 2022, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties. 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) 1,145 9,819 38,337 563 49,864 411,298 461,162 $ $ 1,143 9,315 31,570 430 42,458 343,747 386,205 $ $ (a) Mortgage Backed Securities include an amortized cost of $77.2 million and a fair value of $62.8 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $334.1 million and a fair value of $280.9 million for Obligations of U.S. Government-sponsored enterprises issued by Fannie Mae and Freddie Mac. Securities held to maturity with an amortized cost of $368.8 million and $313.9 million were pledged as of December 31, 2022 ff and 2021, respectively, to secure public deposits for other purposes required or permitted by law. Other Investments As a member of the Federal Home Loan Bank ("FHLB"), First Commonwealth is required to purchase and hold stock in the FHLB to satisfy membership and borrowing requirements. The level of stock required to be held is dependent on the amount of First Commonwealth's mortgage related assets and outstanding borrowings with the FHLB. This stock is restricted in that it can 71 only be sold to the FHLB or to another member institution, and all sales of FHLB stock must be at par. As a result of these restrictions, FHLB stock is unlike other investment securities insofar as there is no trading market for FHLB stock and the transfer price is determined by FHLB membership rules and not by market participants. As of December 31, 2022 and 2021, our FHLB stock totaled $25.2 million and $11.7 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, 2022. At both December 31, 2022 and 2021, Other Investments also includes $1.2 million in equity securities. These securities do not have a readily determinable fair value and are carried at cost. For the years ended December 31, 2022 and 2021, there were no gains or losses recognized through earnings on equity securities. On a quarterly basis, management evaluates equity securities by reviewing research reports, analysts’ recommendations, credit rating changes, news stories, annual reports, regulatory ff filings , impact of interest rate changes and other relevant information. II Impairment of Investment Securities On January 1, 2020, First Commonwealth adopted 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. There were no estimated credit losses recorded during the years ended December 31, 2022, 2021 and 2020. 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 for sale securities the review includes analyzing the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and whether we are more likely than not to sell the security. We evaluate whether we are more likely than not to sell debt securities based upon our investment strategy for the particular type of security and our eld-to-maturity securities are cash flow needs, liquidity position, capital adequacy, tax position and interest rate risk position. H 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. ff The following table presents the gross unrealized losses and estimated fair values at December 31, 2022 for available for sale 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: 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) 3,734 $ (405) $ — $ — $ 3,734 $ (405) 92,208 (12,364) 240,241 (54,722) 332,449 (67,086) Obligations of U.S. Government Agencies: Mortgage-Backed Securities – Residential $ Mortgage-Backed Securities – Commercial Obligations of U.S. Government-Sponsored r Enterpris es: Mortgage-Backed Securities – Residential 239,760 (21,543) 482,195 (110,306) 721,955 (131,849) Mortgage-Backed Securities – Commercial Other Government-Sponsored Enterprises 4,666 — (129) — — — 18,603 (4,619) 4,666 18,603 (129) (4,619) Obligations of States and Political Subdivisions Debt Securities Issued by Foreign Governments Corporate Securities Total Securities 72 21,234 (1,979) 9,230 (2,181) 30,464 (4,160) 587 14,406 (13) (590) 373 12,632 (27) (2,395) 960 27,038 (40) (2,985) $ 376,595 $ (37,023) $ 763,274 $ (174,250) $ 1,139,869 $ (211,273) At December 31, 2022, fixed income securities issued by U.S. Government Agencies and U.S. Government-sponsored enterprises comprised 97% of total unrealized losses. All unrealized losses are a result of changes in market interest rates. At December 31, 2022, there were 209 debt securities in an unrealized loss position. There were no equity securities in an unrealized loss position at December 31, 2022. The following table presents the gross unrealized losses and estimated fair value at December 31, 2021 for both available for sale and held to maturity securities by investment category and time frame for which the securities had been in a continuo us unrealized loss position: ff Less Than 12 Months 12 Months or More Total Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses (dollars in thousands) Obligations of U.S. Government Agencies: Mortgage-Backed Securities – Commercial $ 320,414 $ (6,398) $ — $ — $ 320,414 $ (6,398) Obligations of U.S. Government-Sponsored r Enterpris es: Mortgage-Backed Securities – Residential Other Government-Sponsored Enterprises Obligations of States and Political Subdivisions Debt Securities Issued by Foreign Governments Corporate Securities Total Securities 658,965 22,261 11,213 997 19,013 (14,779) (644) (206) (3) (112) — — — — — — — — — — — 658,965 22,261 11,213 997 997 19,013 (14,779) (644) (206) (3) (112) $ 1,032,863 $ (22,142) $ — $ — $ 1,032,863 $ (22,142) rr As of December 31, 2022, our corporate securities had an amortized cost and estimated fair value of $32.0 million and $29 million, respectively, and were comprised of debt for large regional banks. At December 31, 2021, these securities had an amortized cost of $32.1 million and estimated fair value of $32.9 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. .2 There was no expected credit related impairment recognized on investment securities during the twelve months ended December 31, 2022, 2021 and 2020. 73 Note 9—Loans and Leases and Allowance for Credit Losses Loans and leases are presented in the Consolidated Statements of Financial Condition net of deferred loan fees and costs, and discounts related to purchased loans. Net deferred costs were $5.9 million and $0.8 million as of December 31, 2022 and 2021, respectively, and discounts on purchased loans were $5.4 million and $6.0 million at December 31, 2022 and 2021, respectively. The following table provides outstanding balances related to each of our loan types as of December 31: ff 2022 2021 (dollars in thousands) Commercial, financial, agricultural and other $ 1,211,706 $ Time and demand Commercial credit cards Equipment Finance Time and demand other Real estate construction Construction other Construction residential rr rr Residential real estate Residential first lien Residential junior lien/home equity Commercial real estate Multifamily Nonowner occupied Owner occupied Loans to individuals Automobile and recreational vehicles Consumer credit cards Consumer other Total loans and leases 1,023,824 13,920 79,674 94,288 513,101 395,439 117,662 2,194,669 1,547,192 647,477 2,425,012 431,151 1,510,347 483,514 1,297,655 1,210,451 10,657 76,547 1,173,452 1,159,524 13,928 494,456 1,920,250 1,299,534 620,716 2,251,097 385,432 1,465,247 400,418 999,975 901,280 11,151 87,544 $ 7,642,143 $ 6,839,230 Commercial, financial, agricultural and other loans at December 31, 2022 and 2021 includes $4.3 million and $71.3 million, respectively, in PPP loans for small businesses who meet the necessary eligibility requir by the SBA under the CARES Act and are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the PPP requirements. Because PPP loans are fully guaranteed by the SBA, there is no allowance for credit losses recognized for these loans. ements. PPP loans are 100% guaranteed rr ff First Commonwealth’s loan portfolio includes five primary loan categories. When calculating the allowance for credit losses these categories are classified into fourteen portfolio segments. During 2022, the portfolio loan segments were expanded from eleven to fourteen categories. Loan segments are explained below and all related tables are presented with loan segments considered in each respective period, as this expansion of loan segments is made on a prospective basis in accordance with applicable guidance. The composition of loans by portfolio segment includes; Commercial, financial, agricultural and other TimTT e & Demand - Consists primarily of commercial and industrial loans. This category consists of loans that are typically cash ff flow dependent and therefore have different risk and loss characteristics than other commercial loans. Loans in this category include revolving and term structures with fixed and variable interest rates. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of national unemployment and economic conditions measured by GDP. Commercial Credit Cards - Consists of unsecured credit cards for commercial customers. These commercial credit cards have separate characteristics outside of normal commercial non-real estate loans, as they tend to have shorter overall duration. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of national unemployment and economic conditions measured by GDP. ff Equipment Finance - Consists of loans and leases to finance the purchase of equipment for commercial customers. The risk and loss characteristics are unique for this group due to the type of collateral. The primary macroeconomic drivers for estimating 74 credit losses for this category include forecasts of national unemployment and economic conditions measured by GDP. There were no equipment finance loans or leases in the portfolio prior to the first quarter of 2022. Time & Demand Other - Consists primarily of loans to state and political subdivisions and other commercial loans that have different characteristics than loans in the Time and Demand category. The primary macroeconomic drivers for es timating credit losses for this category include forecasts of household debt to income and economic conditions measured by GDP. Prior to the firff st quarter of 2022, these loans were included in the Time and Demand category. The breakout into a separate category is the result of an annual review of loss history and loss drivers used in the allowance for credit losses model. ff ff Real estate construction Construction Other - Consists of construction loans to commercial builders and developers and are secured by the properties under development. Construction Residential - Consists of loans to finance the construction of residential properties during the construction period. Borrowers are typically individuals who will occupy the completed single family property. The risk and loss characteristics of these two construction categories are different than other real estate secured categories due to the collateral being at various stages of completion. The nature of the project and type of borrower of the two construction categories provides for unique risk and loss characteristics for each category. The primar y macroeconomic drivers for ff estimating credit losses for construction loans include forecasts of national unemployment and measures of completed construction projects. Prior to the first quarter of 2022, all construction loans were included in one loan category. The breakout into separate construction categories is the result of an annual review of loss history and loss drivers used in the allowance for credit losses model. Residential real estate Residential first lien - Consists of loans with collateral of 1-4 family residencies with a senior lien position. The risk and loss characteristics are unique for this group because the collateral for these loans are the borrower’s primary residence. The primary macroeconomic drivers for es residential property values. timating credit losses for this category include forecasts of national unemployment and ff Residential Junior Lien/Home Equity - Consists of loans with collateral of 1-4 family residencies with an open end line of credit or junior lien position. The junior lien position for the majority of these loans provides a higher risk of loss than other residential real estate loans. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of national unemployment and residential property values. Commercial real estate Multifamily - Consists of loans secured by commercial multifamily properties. Real estate related to rentals to consumers provide unique risk and loss characteristics. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of commercial real estate values and national unemployment. In the first quarter of 2022, as a result of an annual review of loss history and loss drivers, national unemployment replaced rental vacancy as one of the primary macroeconomic drivers in this category. Nonowner Occupied - Consists of loans secured by commercial real estate non-owner occupied and provides different loss characteristics than other real estate categories. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of national unemployment and economic conditions measured by GDP. ff Owner Occupied - Consists of loans secured by commercial real estate owner occupied properties. The risk and loss characteristics of this category were considered different than other real estate categories because it is owner occupied and would impact the ability to conduct business. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of national unemployment and economic conditions measured by GDP. Loans to individuals Automobile and recreational vehicles - Consists of both direct and indirect loans with automobiles and recreational vehicles held as collateral. The primary macroeconomic drivers for estimating credit losses for this category include f ff orecasts of ff 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 es timating credit losses for this category include forecasts of consumer sentiment and retail ff 75 sales. In the first quarter of 2022, as a result of an annual review of loss history and loss drivers, retail sales replaced household debt as one of the primary macroeconomic factors for this category. The allowance for credit losses is calculated by pooling loans of similar credit risk characteristics and applying a discounted cash flow methodology after incorporating probability of default and loss given default estimates. Probability of default represents an estimate of the likelihood of default and loss given default measures the expected loss upon default. Inputs impacting the expected losses include a forecast of macroeconomic factors, using a weighted forecast from a nationally recognized firm. Our model incorporates a one-year forecast of macroeconomic factors, after which the factors revert back to the historical mean over a one-year period. The most significant macroeconomic factor used in estimating credit losses is the national unemployment rate. The forecasted value for national unemployment at the beginning of the forecast period was 3.68% and during the one-year forecast period it was projected to average 4.68%, with a peak of 5.01%. ff ff 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 p Other Assets y Especially Mentioned ) (OAEM) ( Substandard Acceptable levels of risk exist in the relationship. Includes all loans not classified as OAEM, substandard or doubtful. Potential weaknesses that deserve management’s close attention. The potential weaknesses may result in deterioration of the repayment prospects or weaken the Bank’s credit position at some future date. The credit risk may be relatively minor, yet constitute an undesirable risk in light of the circumstances surrounding the specific credit. No loss of principal or interest is expected. Well-defined weakness or a weakness that jeopardizes the repayment of the debt. A loan may be classified as substandard as a result of deterioration of the borrower’s financial condition and repayment capacity. Loans for which repayment plans have not been met or collateral equity margins do not protect the Company may also be classified as substandard. Doubtful Loans with the characteristics of substandard loans with the added characteristic that collection or liquidation in full, on the basis of presently existing facts and conditions, is highly improbable. The Company’s internal creditworthiness grading system provides a measurement of credit risk based primarily on an evaluation of the borrower’s cash flow and collateral. Category ratings are reviewed each quarter, at which time management analyzes the results, as well as other external statistics and factors related to loan performance. The following tables represent our cr ff edit risk profile by creditworthiness category for the years ended December 31: 76 2022 Non-Pass Pass OAEM Substandard Doubtful Loss Total Non- Pass Total (dollars in thousands) $ 1,164,193 $ 35,389 $ 12,124 $ — $ — $ 47,513 $ 1,211,706 976,346 35,389 12,089 13,920 79,674 94,253 513,101 395,439 117,662 2,187,780 1,542,854 644,926 430,613 1,439,478 476,909 1,297,206 1,210,090 10,657 76,459 — — — — — — 736 675 61 52,291 488 49,037 2,766 — — — — — — 35 — — — 6,153 3,663 2,490 25,721 50 21,832 3,839 449 361 — 88 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 47,478 1,023,824 — — 35 — — — 6,889 4,338 2,551 78,012 538 13,920 79,674 94,288 513,101 395,439 117,662 2,194,669 1,547,192 647,477 2,425,012 431,151 70,869 1,510,347 6,605 449 361 — 88 483,514 1,297,655 1,210,451 10,657 76,547 $ 7,509,280 $ 88,416 $ 44,447 $ — $ — $ 132,863 $ 7,642,143 Commercial real estate 2,347,000 Commercial, financial, agricultural and other Time and demand Commercial credit cards Equipment Finance Time and demand other Real estate construction Construcrr tion other Construcrr residential tion Residential real estate Residential fiff rst lien Residential junior lien/ home equity Multifaff mily Nonowner occupied Owner occupied Loans to individuals Automobile and recreational vehicles Consumer credit cards Consumer other Total 77 Pass OAEM Substandard Doubtful Loss Total Non- Pass Total (dollars in thousands) Commercial, financial, agricultural and other $ 1,121,234 $ 33,765 $ 18,453 $ — $ — $ 52,218 $ 1,173,452 2021 Non-Pass Time and demand 1,107,306 33,765 18,453 Commercial credit cards Real estate construction Residential real estate Residential first lien Residential junior lien/ home equity 13,928 493,913 1,913,064 1,295,524 617,540 Commercial real estate 2,113,123 Multifamily Nonowner occupied Owner occupied Loans to individuals Automobile and recreational vehicles Consumer credit cards Consumer other Total 355,702 1,368,922 388,499 999,770 901,132 11,151 87,487 — 498 976 905 71 85,324 14,565 63,783 6,976 — — — — — 45 6,210 3,105 3,105 52,650 15,165 32,542 4,943 205 148 — 57 — — — — — — — — — — — — — — — — — — — — — — — — — — — — 52,218 1,159,524 — 13,928 543 7,186 4,010 494,456 1,920,250 1,299,534 3,176 620,716 137,974 2,251,097 29,730 96,325 11,919 205 148 — 57 385,432 1,465,247 400,418 999,975 901,280 11,151 87,544 $ 6,641,104 $ 120,563 $ 77,563 $ — $ — $ 198,126 $ 6,839,230 The following table summarizes the loan risk rating category by loan type including term loans on an amortized cost basis by origination year as of December 31: 78 2022 Term Loans 2022 2021 2020 2019 2018 Prior (dollars in thousands) Revolving Loans Total Time and demand $ 180,134 $ 165,064 $ 66,006 $ 88,959 $ 57,030 $ 57,907 $ 408,724 $1,023,824 180,134 154,542 56,592 79,935 56,718 56,309 392,116 976,346 Pass OAEM Substandard Commercial credit cards Pass Equipment Finance Pass Time and demand other Pass Substandard Construction other Pass Construction residential Pass 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 and recreational vehicles Pass Substandard Consumer credit cards Pass Consumer other Pass Substandard Total 79 — — — — 79,674 79,674 7,172 7,172 — 81,870 81,870 82,829 82,829 272,136 272,136 — — 77,016 77,016 — — 140,004 140,004 — — 10,489 33 — — — — 20,281 20,281 — 179,919 179,919 34,783 34,783 507,573 507,042 164 367 49,273 49,273 — — 90,868 90,868 — — 8,387 1,027 — — — — 19,626 19,626 — 85,264 85,264 — — 1,846 7,178 — — — — 3,823 3,823 — 23,001 23,001 31 31 337,995 337,979 102,870 102,097 — 16 1,499 1,499 — — 60,699 60,699 — — 298,751 298,751 153,918 153,918 115,947 115,947 — — — — 113,010 113,010 105,513 105,309 — — 182 22 — — 56,977 55,468 745 764 613,513 613,513 330,298 330,252 172,530 172,435 — — — 6,561 6,561 — 46 — — 17,177 17,177 — 95 — — 2,489 2,489 — 133 640 2,584 2,517 — 67 39,848 39,848 — — 214,068 212,588 1,480 — 44,430 43,014 791 625 68,996 68,865 131 — — 3,798 3,775 23 250 62 — — — — 2,885 2,885 — 24,005 24,005 18 18 69,890 69,212 51 627 1,683 1,683 — — 19,914 19,914 — — 141,814 113,638 20,349 7,827 26,456 26,294 92 70 20,589 20,524 65 — — 1,656 1,652 4 895 703 — — — — 36,197 36,162 35 1,011 1,011 — — 255,573 253,310 250 2,013 4,396 4,263 51 82 78,483 77,945 488 50 581,060 541,007 26,207 13,846 131,432 128,230 923 2,279 4,525 4,501 24 — — 4,085 4,085 — 13,522 3,086 13,920 13,920 — — 4,304 4,304 — 369 369 1 1 35,389 12,089 13,920 13,920 79,674 79,674 94,288 94,253 35 395,439 395,439 117,662 117,662 1,155 1,078 1,547,192 1,542,854 77 — 511,026 508,675 10 2,341 1,335 1,335 — — 4,789 3,629 1,001 159 5,696 5,584 33 79 675 3,663 647,477 644,926 61 2,490 431,151 430,613 488 50 1,510,347 1,439,478 49,037 21,832 483,514 476,909 2,766 3,839 — 1,210,451 — 1,210,090 — 10,657 10,657 40,781 40,720 61 361 10,657 10,657 76,547 76,459 88 $1,952,670 $1,654,667 $ 919,032 $ 592,408 $ 365,940 $1,154,669 $1,002,757 $7,642,143 2021 Term Loans 2021 2020 2019 2018 2017 Prior (dollars in thousands) Revolving Loans Total Time and demand $ 281,244 $ 126,403 $ 143,030 $ 91,118 $ 45,442 $ 111,127 $ 361,160 $1,159,524 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 and recreational vehicles Pass Substandard Consumer credit cards Pass Consumer other Pass Substandard Total Portfolio Risks f 280,854 125,728 128,080 83,204 390 — — — 596 79 — — 1,125 13,825 — — 202,016 201,992 129,298 128,824 123,153 123,153 24 — 474 — — — 376,106 376,095 375,904 375,885 126,788 126,618 — 11 56,861 56,861 — — 90,062 90,062 — — 194,137 194,137 — — 77,710 77,710 — — — 19 1,999 1,999 — — 73,068 73,068 — — — 170 3,322 3,246 — 76 16,782 16,782 — — 98,840 98,840 202,236 202,236 — — 62,380 59,973 2,194 213 — — 53,954 51,513 1,220 1,221 456,730 456,730 252,518 252,518 122,943 122,867 — — — 22,156 22,156 — — — — 4,655 4,655 — 76 — — 8,030 8,030 — 7,780 134 — — 38,267 38,267 — — 84,484 84,079 67 338 2,684 2,684 — — 36,523 21,846 — 14,677 173,053 155,293 3,723 14,037 34,115 33,623 492 — 48,375 48,361 14 — — 5,084 5,084 — 31,472 13,945 25 — — 441 441 — — 74,268 74,135 — 133 1,009 1,009 — — 63,872 49,832 14,040 — 177,295 152,174 19,235 5,886 32,989 31,644 1,321 24 17,230 17,224 6 — — 542 542 — 102,399 355,569 1,107,306 7,126 1,602 — — 841 796 — 45 2,803 2,788 13,928 13,928 440 440 — — 33,765 18,453 13,928 13,928 494,456 493,913 498 45 260,010 256,815 1,974 1,897 1,299,534 1,295,524 761 2,434 5,348 5,195 61 92 103,774 102,761 525 488 615,943 563,743 39,737 12,463 134,713 129,593 1,716 3,404 3,484 3,432 52 — — 5,503 5,460 43 77 — 549,493 546,546 10 2,937 1,351 1,351 — — 3,743 2,499 1,088 156 4,557 4,443 33 81 — — — 11,151 11,151 41,574 41,560 14 905 3,105 620,716 617,540 71 3,105 385,432 355,702 14,565 15,165 1,465,247 1,368,922 63,783 32,542 400,418 388,499 6,976 4,943 901,280 901,132 148 11,151 11,151 87,544 87,487 57 $1,757,022 $1,125,065 $ 800,238 $ 513,703 $ 413,088 $1,240,743 $ 989,371 $6,839,230 The credit quality of our loan portfolio can potentially represent significant risk to our earning s, capital and liquidity. First Commonwealth devotes a substantial amount of resources managing this risk primarily through our credit administration department that develops and administers policies and procedures for underwriting, maintaining, monitoring and collecting ff 80 loans. Credit administration is independent of lending departments and oversight is provided by the credit committee of the First Commonwealth Board of Directors. Total gross charge-offs for the years ended December 31, 2022 and 2021 were $9.8 million and $13.1 million, respectively. Age Analysis of Past Due Loans by Segment g g y y f The following tables delineate the aging analysis of the recorded investments in past due loans as of December 31. Also included in these tables are loans that are 90 days or more past due and still accruing because they are well-secured and in the process of collection. 2022 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 $ 1,233 $ 1,121 27 — 85 502 — 502 3,023 1,547 1,476 7,870 202 7,547 121 3,268 2,694 53 521 $ 279 270 9 — — — — — 1,178 771 407 25 — — 25 571 368 29 174 355 352 — — 3 — — — 811 214 597 93 — 92 1 732 295 5 432 $ 2,374 $ 4,241 $ 1,207,465 $ 1,211,706 2,374 4,117 1,019,707 1,023,824 — — — — — — 5,683 3,369 2,314 20,539 — 19,575 964 449 361 — 88 36 — 88 502 — 502 10,695 5,901 4,794 28,527 202 13,884 79,674 94,200 512,599 395,439 117,160 13,920 79,674 94,288 513,101 395,439 117,662 2,183,974 2,194,669 1,541,291 1,547,192 642,683 647,477 2,396,485 2,425,012 430,949 431,151 27,214 1,483,133 1,510,347 1,111 5,020 482,403 483,514 1,292,635 1,297,655 3,718 1,206,733 1,210,451 87 1,215 10,570 75,332 10,657 76,547 $ 15,896 $ 2,053 $ 1,991 $ 29,045 $ 48,985 $ 7,593,158 $ 7,642,143 Commercial, financial, agricultural and other Time and demand Commercial credit cards Equipment Finance Time and demand other Real estate construction Construction other Construction residential Residential real estate Residential fiff rst lien Residential junior lien/home equity Commercial real estate Multifaff mily Nonowner occupied Owner occupied Loans to individuals Automobile and recreational vehicles Consumer credit cards Consumer other Total 81 2021 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 $ 633 605 28 813 3,393 1,934 1,459 — — — — 1,611 1,228 36 347 $ 987 972 15 — 983 354 629 74 — — 74 417 175 44 198 155 144 11 448 218 51 167 — — — — 785 199 63 523 $ 2,006 $ 3,781 $ 1,169,671 $ 1,173,452 2,006 3,727 1,155,797 1,159,524 — 45 5,608 2,706 2,902 40,195 15,097 23,930 1,168 206 148 — 58 54 1,306 10,202 5,045 5,157 40,269 15,097 23,930 1,242 3,019 1,750 143 1,126 13,874 493,150 13,928 494,456 1,910,048 1,920,250 1,294,489 1,299,534 615,559 620,716 2,210,828 2,251,097 370,335 385,432 1,441,317 1,465,247 399,176 996,956 400,418 999,975 899,530 901,280 11,008 86,418 11,151 87,544 $ 6,450 $ 2,461 $ 1,606 $ 48,060 $ 58,577 $ 6,780,653 $ 6,839,230 $ Commercial, financial, agricultural and other Time and demand Commercial credit cards Real estate construction Residential real estate Residential fiff rst lien Residential junior lien/home equity Commercial real estate Multifaff mily Nonowner occupied Owner occupied Loans to individuals Automobile and recreational vehicles Consumer credit cards Consumer other Total Nonaccrual Loans The previous tables summarize nonaccrual loans by loan segment. The Company generally places loans on nonaccrual status when the full and timely collection of interest or principal becomes uncertain, when part of the principal balance has been charged off and no restructuring has occurred, or the loans reach a certain number of days past due. Generally, loans 90 days or more past due are placed on nonaccrual status, except for consumer loans which are placed in nonaccrual status at 150 days past due. When a loan is placed on nonaccrual, the accrued unpaid interest receivable is reversed against interest income and all future payments received are applied as a reduction to the loan principal. Generally, the loan is returned to accrual status when (a) all delinquent interest and principal 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. 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 restructur rr nonperforming, the credit loss is measured based on the present value of expected future cash flowff effff ective interest rate, except when the s ff the loan is collateral dependent, the appraised value less estimated cost to sell is utilized. If management determines the value of 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. ole source or repayment for the loan is the operation or liquidation of collateral. When ed loans. When management identifies a loan as s, discounted at the loan’s ff 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. There were no nonperforming loans held for sale at both December 31, 2022 and 2021. There were no gains on nonperforming loans held for s nonperforming loans recognized during the year ended December 31, 2021. ale during both of the years ended December 31, 2022 and 2020. There was $0.4 million in gains on sale of ff ff 82 The following tables include the recorded investment and unpaid principal balance for nonperforming loans with the associated allowance amount, if applicable, as of December 31, 2022 and 2021. Also presented are the average recorded investment in nonperforming loans and the related amount of interest recognized while the loan was considered nonperforming for the years ended December 31, 2022, 2021 and 2020. 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. Recorded investment Unpaid principal balance 2022 Related specific allowance (dollars in thousands) Average recorded investment Interest Income Recognized ff With no related specific allowance recorded: Commercial, financial, agricultural and other $ Time and demand Equipment Finance Time and demand other Real estate construction Construction other Construction residential rr rr Residential real estate Residential first lien Residential junior lien/home equity Commercial real estate Multifamily Nonowner occupied Owner occupied Loans to individuals Automobile and recreational vehicles Consumer other Subtotal With a specific allowance recorded: Commercial, financial, agricultural and other $ Time and demand Equipment Finance Time and demand other Real estate construction Construction other Construction residential Residential real estate Residential first lien Residential junior lien/home equity Commercial real estate Multifamily Nonowner occupied Owner occupied Loans to individuals Automobile and recreational vehicles Consumer other Subtotal Total 83 $ $ 3,141 3,141 — — — — — 9,145 5,754 3,391 21,505 — 20,155 1,350 528 440 88 34,319 1,168 1,168 — — — — — — — — — — — — — — — 1,168 9,555 9,555 — — — — — 11,010 6,848 4,162 24,119 — 22,565 1,554 563 475 88 45,247 1,186 1,186 — — — — — — — — — — — — — — — 1,186 $ $ 35,487 $ 46,433 $ $ $ $ $ 3,751 3,751 — — — — — 9,040 5,280 3,760 22,983 172 21,304 1,507 455 378 77 36,229 261 261 — — — — — — — — — — — — — — — 261 157 157 — — — — — 241 172 69 172 43 104 25 16 16 — 586 8 8 — — — — — — — — — — — — — — — 8 $ 36,490 $ 594 711 711 — — — — — — — — — — — — — — — 711 711 Recorded investment Unpaid principal balance 2021 Related specific allowance (dollars in thousands) Average recorded investment Interest Income Recognized $ $ 3,720 3,720 45 9,365 5,200 4,165 40,591 14,677 24,581 1,333 446 388 58 54,167 327 327 — — — — 686 421 — 265 — — — 10,303 10,303 53 11,294 6,337 4,957 41,525 14,677 25,310 1,538 485 422 63 63,660 $ 349 349 — — — — 711 446 — 265 — — — 1,013 1,060 $ 55,180 $ 64,720 $ $ $ $ $ 9,240 9,240 53 10,315 5,674 4,641 26,235 1,223 22,668 2,344 479 425 54 46,322 84 84 — — — — 665 444 — 221 — — — 749 389 389 — 375 279 96 119 — 28 91 15 15 — 898 — — — — — — — — — — — — — — $ 47,071 $ 898 307 307 — — — — 88 88 — — — — — 395 395 ff 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 and recreational vehicles 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 and recreational vehicles Consumer other Subtotal Total 84 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 and recreational vehicles 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 and recreational vehicles Consumer other Subtotal Total 2020 Average recorded investment Interest Income Recognized (dollars in thousands) $ 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 Unfunded commitments related to nonperforming loans were $0.2 million at both December 31, 2022 and 2021. After considering the collateral related to these commitments, there was no reserve established as of December 31, 2022 or 2021. Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the financial difficulties experienced by the borrower, who could not obtain comparable terms frff om alternate financing sources. Troubled debt restructured loans are considered to be nonperforming loans. ff 85 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 2022 2021 2020 (dollars in thousands) $ $ $ $ 6,442 8,852 15,294 60 23 83 $ $ $ $ 7,120 13,134 20,254 60 16 76 $ $ $ $ 8,512 14,740 23,252 60 11 71 The follow ff troubled debt restructurings during the years ending December 31: ing tables provide detail, including specific reserve and reasons for modification, related to loans identified as ff Type of Modification 2022 Number of Contracts Extend Maturity Modify Rate Modify Payments Total Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment Specific Reserve Residential real estate Residential fiff rst lien Total 5 5 5 $ $ — $ — — $ (dollars in thousands) 10 10 10 $ $ 683 683 683 $ $ 693 693 693 $ $ 676 676 676 $ $ — — — Type of Modification 2021 Number of Contracts Extend Maturity Modify Rate Modify Payments Total Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment (dollars in thousands) $ — $ — $ 7,893 $ 7,893 $ Specific Reserve $ 6 6 15 12 3 2 2 7 7 — — — — — — — — — 359 359 — — — 110 110 469 7,893 7,893 301 171 130 644 644 63 63 660 530 130 644 644 173 173 288 288 624 502 122 634 634 144 144 — — — — — — — — — — 30 $ — $ $ 8,901 $ 9,370 $ 1,690 $ Commercial, financial, agricultural and other Time and demand Residential real estate Residential fiff rst lien Residential junior lien/ home equity Commercial real estate Nonowner occupied Loans to individuals Automobile and recreational vehicles Total 86 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 Commercial, fiff nancial, agricultural and other Time and demand Residential real estate Residential fiff rst lien Residential junior lien/home equity Commercial real estate Nonowner occupied Owner occupied Loans to individuals Automobile and recreational vehicles Total 4 4 18 9 9 5 4 1 14 14 41 $ — $ — — — — — — — — — $ — $ (dollars in thousands) $ 2,176 $ 2,805 $ 2,196 $ 2,176 2,805 2,196 917 513 404 10,857 10,289 568 148 148 950 546 404 10,857 10,289 568 262 262 791 411 380 10,758 10,263 495 224 224 $ 14,098 $ 14,874 $ 13,969 $ 629 629 33 33 — — — — 114 114 776 636 636 — — — — — — — — 636 The troubled debt restructurings included in the above tables are also included in the nonperforming loan tables provided earlier in this footnote. Loans defined as modified due to a change in rate include loans that were modified for a change in rate as well as a re-amortization of the principal and an extension of the maturity. For the years ended December 31, 2022, 2021 and 2020, $10 thousand, $0.4 million and $0.8 million, respectively, of total rate modifications represent loans with modifications to the rate as well as payment due to re-amortization. In 2022 and 2020, the changes in loan balances between the pre-modification balance and post-modification balance are due to customer payments. For 2021, the change between the pre-modification and post-modification balance for commercial real estate loans is primarily due to the payoff of one large commercial relationship that restructured during the year. ff A troubled debt restructuring is considered to be in default when a restructured loan is 90 days or more past due. The following table provides information related to loans that were restructured within the past twelve months and that were considered to be in default during the year ending December 31: Commercial, financial, agricultural and other Time and demand Residential real estate Residential junior lien/home equity Loans to individuals Automobile and recreational vehicles Total 2022 2021 2020 Number of Contracts Recorded Investment Number of Contracts Recorded Investment Number of Contracts Recorded Investment (dollars in thousands) — $ — — — — — — $ — — — — — — — 1 1 — — 1 1 2 $ $ 223 223 — — 21 21 244 — $ — 1 1 2 2 3 $ — — 34 34 74 74 108 87 The following tables provide detail related to the allowance for credit losses for the years ended December 31. 2022 Beginning balance Charge-offs Recoveries (dollars in thousands) Provision (credit)a Ending balance Commercial, financial, agricultural and other $ 18,093 $ (2,361) $ Time and demand Commercial credit cards Equipment Finance Time and demand other Real estate construction Construction other Construction residential Residential real estate Residential fiff rst liens Residential junior liens/home equity Commercial real estate Multifaff mily Nownowner occupied Owner occupied Loans to individuals Automobile and recreational vehicles Consumer credit cards Consumer other Total 15,283 247 — 2,563 4,220 3,278 942 12,625 7,459 5,166 33,376 3,561 24,838 4,977 24,208 21,392 496 2,320 (710) (217) — (1,434) — — — (339) (163) (176) (2,487) (411) (1,836) (240) (4,658) (2,639) (486) (1,533) 394 202 71 — 121 9 9 — 187 130 57 769 411 342 16 1,349 787 75 487 $ 6,524 $ 5,265 234 1,086 (61) 4,593 3,073 1,520 8,939 7,396 1,543 (2,854) 1,165 (6,918) 2,899 319 (721) 327 713 22,650 20,040 335 1,086 1,189 8,822 6,360 2,462 21,412 14,822 6,590 28,804 4,726 16,426 7,652 21,218 18,819 412 1,987 $ 92,522 $ (9,845) $ 2,708 $ 17,521 $ 102,906 a) The provision (credit) shown here excludes the provision for off-balance sheet credit exposure included in the income statement. 88 December 31, 2022 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 Commercial, financial, agricultural and other Time and demand Commercial credit cards Equipment Finance Time and demand other Real estate construction Construction other Construction residential Residential real estate Residential fiff rst liens Residential junior liens/ home equity Commercial real estate Multifaff mily Nownowner occupied Owner occupied Loans to individuals Automobile and recreational vehicles Consumer credit cards Consumer other $ 22,650 $ 20,040 335 1,086 1,189 8,822 6,360 2,462 21,412 14,822 6,590 28,804 4,726 16,426 7,652 21,218 18,819 412 1,987 711 711 — — — — — — — — — — — — — — — — — $ 21,939 $ 1,211,706 $ 3,330 $ 1,208,376 19,329 1,023,824 3,330 1,020,494 335 1,086 1,189 8,822 6,360 2,462 21,412 14,822 6,590 28,804 4,726 16,426 7,652 21,218 18,819 412 1,987 13,920 79,674 94,288 513,101 395,439 117,662 2,194,669 1,547,192 647,477 2,425,012 431,151 1,510,347 483,514 1,297,655 1,210,451 10,657 76,547 — — — — — — 301 301 — 20,583 — 19,918 665 — — — — 13,920 79,674 94,288 513,101 395,439 117,662 2,194,368 1,546,891 647,477 2,404,429 431,151 1,490,429 482,849 1,297,655 1,210,451 10,657 76,547 Total $ 102,906 $ 711 $ 102,195 $ 7,642,143 $ 24,214 $ 7,617,929 89 2021 Beginning balance ff Charge-offff s Recoveries (dollars in thousands) Provision (credit)a Ending balance Commercial, financial, agricultural and other $ 17,187 $ (7,020) $ 2,430 $ 5,496 $ 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 and recreational vehicles Consumer credit cards Consumer other Total 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 (6,845) 2,412 (175) (9) (309) (60) (249) (1,659) (1) (1,556) (102) (4,061) (1,792) (425) (1,844) 18 155 468 337 131 135 — 125 10 1,460 1,016 71 373 5,441 55 (3,892) (1,892) (737) (1,155) (7,053) (2,678) (2,145) (2,230) 6,964 6,035 215 714 $ 101,309 $ (13,058) $ 4,648 $ (377) $ 18,093 17,846 247 4,220 12,625 7,459 5,166 33,376 3,561 24,838 4,977 24,208 21,392 496 2,320 92,522 a) The provision (credit) shown here excludes the provision for off-balance sheet credit exposure included in the income statement. December 31, 2021 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 Commercial, financial, agricultural and other Time and demand Commercial credit cards Real estate construction Residential real estate Residential fiff rst liens Residential junior liens/ home equity Commercial real estate Multifaff mily Nownowner occupied Owner occupied Loans to individuals Automobile and recreational vehicles Consumer credit cards Consumer other $ 18,093 $ 17,846 247 4,220 12,625 7,459 5,166 33,376 3,561 24,838 4,977 24,208 21,392 496 2,320 307 307 — — — — — 88 88 — — — — — — $ 17,786 $ 1,173,452 $ 3,032 $ 1,170,420 17,539 247 4,220 12,625 7,459 5,166 33,288 3,473 24,838 4,977 24,208 21,392 496 2,320 1,159,524 13,928 494,456 1,920,250 1,299,534 620,716 2,251,097 385,432 1,465,247 400,418 999,975 901,280 11,151 87,544 3,032 1,156,492 — — 253 — 253 40,246 15,097 24,205 944 — — — — 13,928 494,456 1,919,997 1,299,534 620,463 2,210,851 370,335 1,441,042 399,474 999,975 901,280 11,151 87,544 Total $ 92,522 $ 395 $ 92,127 $ 6,839,230 $ 43,531 $ 6,795,699 90 2020 Beginning balance Impact of adoption of CECL Charge-offs Recoveries (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 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 fiff rst liens Residential junior liens/ home equity Commercial real estate Multifaff mily 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 91 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 tomers. These financial instruments include commitments to extend credit, standby letters of credit and ff financial needs of its cus 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 financial instrument for commitments to extend credit, standby letters of credit and commercial letters of credit is represented by the contract or notional amount of those instruments. First Commonwealth uses the same credit policies for underwriting all loans, including these commitments and conditional obligations. rr rr As of December 31, 2022 and 2021, First Commonwealth did not own or trade other financial instruments with significant off- balance sheet risk including derivatives such as futures, forwards, option contracts and the like, although such instruments may be appropriate to use in the future to manage interest rate risk. See Note 7, “Derivatives,” for a description of interest rate derivatives entered into by First Commonwealth. Standby letters of credit and commercial letters of credit are conditional commitments issued by First Commonwealth to guarantee the performance of a customer to a third party. The contract or notional amount of these instruments reflects the maximum amount of future payments that First Commonwealth could be required to pay under the guarantees if there were a total default by the guaranteed parties, without consideration 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. 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 cr Commercial letters of credit edit ff 2022 2021 (dollars in thousands) $ $ 2,356,539 18,417 12,853 573 2,353,991 18,824 10,663 975 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 ar ff 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. e expected to expire without being drawn upon, the total commitment amounts do not The notional amounts outstanding at December 31, 2022 include amounts issued in 2022 of $1.3 million in financial standby letters of credit and $4.9 million in performance standby letters of credit. There were no commercial letters of credit issued during 2022. A liability of $0.1 million has been recorded as of December 31, 2022 and 2021, which represents the estimated fair value of letters of credit issued. The fair value of letters of credit is estimated based on the unrecognized po ff received at the time the commitment was issued. rtion of fees 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 $10.0 million and $6.4 million as of December 31, 2022 and 2021, 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 for comparable loan categories as part of the allowance for credit losses for loans. 92 Note 11—Premises, Equipment and Lease Commitments Premises and Equipment q p Premises and equipment are described as follows: Land Buildings and improvements Operating lease right of use asset Leasehold improvements Furniture and equipment Software r ff Subtotal Less accumulated depreciation and amortization Total premises and equipment, net timated Useful Lifeff 2022 2021 (dollars in thousands) Indefinite $ 10-50 years 1-25 years 5-40 years 3-7 years 3-7 years $ 13,860 70,844 51,499 37,398 76,879 44,439 294,919 179,813 115,106 $ $ 14,621 75,149 47,938 35,909 73,976 43,511 291,104 170,329 120,775 Depreciation related to premises and equipment included in noninterest expense for the years ended December 31, 2022, 2021 and 2020 amounted to $9.1 million, $9.9 million and $10.9 million, respectively. Amortization of lease right-of-use assets totaled $3.4 million in 2022, $1.4 million in 2021 and $2.6 million in 2020. At December 31, 2022, there were no premise and equipment assets considered available for sale. At December 31, 2021, $1.9 million in premise and equipment assets were considered available for sale as a result of the 2020 branch consolidation initiative. Lease Commitments First Commonwealth has elected to apply certain practical expedients under ASU 2016-02 "Leases" (Topic 842), including (i) to not apply the requirements in the new standard to short-term leases (ii) to not reassess the lease classification for any expired or existing lease (iii) to account for lease and non-lease components separately (iv) to not reassess initial direct costs for any existing leases. The impact of this standard primarily relates to operating leases of certain real estate properties, primarily certain branch and ATM locations and office space. First Commonw the lessor of property or equipment. ealth has no material leasing arrangements for which it is ff The following table represents the lease costs and other lease information for the years ended December 31. ff Balance sheet: Operating lease asset classified as premises and equipment Operating lease liability classified as other liabilities Income statement: Operating lease cost classified as occupancy and equipment expense Weighted average lease term, in years Weighted average discount rate Operating cash flows $ $ $ 2022 2021 (dollars in thousands) 40,747 45,149 4,990 13.95 3.29 % 4,838 $ $ $ 40,550 44,801 4,806 14.11 3.24 % 4,753 The ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. First Commonwealth's lease agreements often include one or more options to renew at the Company's discretion. If we consider the renewal option to be reasonably certain, we include the extended term in the calculation of the ROU asset and lease liability. First Commonwealth uses incremental borrowing rates when calculating the lease liability because the rate implicit in the lease is not readily determinable. The incremental borrowing rate used by First Commonwealth is an amortizing loan rate obtained frff om the Federal Home Loan Bank ("FHLB") of Pittsburgh. This rate is consistent with a collateralized borrowing rate and is 93 available for terms similar to the lease payment schedules. ff The following table reconciles future minimum lease payments du subject to recognition) to the lease liability as of December 31, 2022 (dollars in thousands): e under non-cancelable operating leases (those amounts For the twelve months ended December 31, 2023 2024 2025 2026 2027 Thereafter Total future minimum lease payments Less remaining imputed interest Operating lease liability $ $ 4,952 4,807 4,593 4,201 3,956 35,244 57,753 12,604 45,149 Rent expense, net of rental income, for all operating leases totaled $4.7 million in 2022, $4.5 million in 2021 and $6.7 million in 2020. Rent expense includes amounts related to items that are not included in the determination of lease right-of-use assets 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" ("Topic 350"), requires an annual valuation of the fair value of a reporting unit that has goodwill and a comparison of the fair value to the book value of equity to determine whether the goodwill has been impaired. Goodwill is also required to be tested on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. When circumstances indicate that it is more likely than not that fair value is less than carrying value, a tr ff performed. iggering event has occurred and a quantitative impairment test would be ff We consider First Commonwealth to be one reporting unit. The carrying amount of goodwill as of December 31, 2022 and 2021 was $303.3 million. No impairment charges on goodwill or other intangible assets were incurred in 2022, 2021 or 2020. We test goodwill for impairment as of November 30th each year and again at any quarter-end if any material events occur during a quarter that may affect goodwill. As of December 31, 2022, no indicators of impairment were identified; however, changing economic conditions that may adversely affect our performance, the fair value of our assets and liabilities, or our stock price could result in impairment, which could adversely affect earnings in future periods. Management will continue to monitor events that could impact this conclusion in the future. Topic 350 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. 94 The following table summarizes other intangible assets: December 31, 2022 Customer deposit intangibles Customer list intangible Total other intangible assets December 31, 2021 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 22,573 2,283 24,856 $ $ $ $ (16,750) $ (1,921) (18,671) $ (14,407) $ (1,762) (16,169) $ 5,823 362 6,185 8,166 521 8,687 ff 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 6.7 years and a weighted average amortization period of approximately 5.3 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 acquis 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 6.7 years and a weighted average amortization period of 4.9 years. First Commonwealth recognized amortization expense on other intangible assets of $2.5 million, $2.9 million, and $3.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. ition in 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 $3.0 million and $2.5 million as of December 31, 2022 and 2021, 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 $0.7 million and $0.6 million for the years ended December 31, 2022 and 2021, respectively. The following presents the estimated amortization expense of core deposit and customer list intangibles: 2023 2024 2025 2026 2027 Thereafter Total Core Deposit Intangibles Customer List Intangible Total (dollars in thousands) 1,932 $ 128 $ 1,522 1,112 702 312 243 97 69 42 15 11 5,823 $ 362 $ 2,060 1,619 1,181 744 327 254 6,185 $ $ Note 13—Interest-Bearing Deposits Components of interest-bearing deposits at December 31 were as follows: Interest-bearing demand deposits Savings deposits Time deposits Total interest-bearing deposits 95 2022 2021 (dollars in thousands) $ $ 357,769 $ 291,476 4,572,183 405,009 5,334,961 $ 4,647,197 385,043 5,323,716 Interest-bearing deposits at both December 31, 2022 and 2021 include allocations from interest-bearing demand deposit accounts of $1.4 billion into savings, which includes money market accounts. These allocations are based on a formula and were made to reduce First Commonwealth’s reserve requirement in compliance with regulatory guidelines. Deposits totaling $0.7 million and $0.6 million at December 31, 2022 and 2021, respectively, were reclassified from deposits to loans due to their overdrawn status. Included in time deposits at December 31, 2022 and 2021 were certificates of deposit in denominations of $250 thousand or more of $65.5 million and $51.7 million, respectively. Interest expense related to certificates of deposit in denominations of $250 thousand or greater amounted to $0.2 million in 2022, $0.4 million in 2021 and $2.0 million in 2020. Included in time deposits at December 31, 2022, were certificates of deposit with the following scheduled maturities (dollars in thousands): 2023 2024 2025 2026 2027 and thereafter Total Note 14—Short-term Borrowings Short-term borrowings at December 31 were as follows: $ 230,244 83,065 64,757 18,708 8,235 $ 405,009 Ending Balance 2022 Average Balance Average Rate Ending Balance 2021 Average Balance Average Rate Ending Balance 2020 Average Balance Average Rate Federal funds purchased $ — $ 1,553 3.93 % $ — $ Borrowings frff om FHLB 285,000 41,529 4.24 — — — (dollars in thousands) Securities sold under agreements to repurchase Total $ 372,694 $ 144,834 87,694 101,752 0.18 1.38 138,315 119,801 $ 138,315 $ 119,801 — 0.08 0.08 — % $ — $ 4,147 — 28,252 1.06 % 1.54 117,373 110,235 $ 117,373 $ 142,634 0.21 0.49 Maximum total at any month-end Weighted average rate at year-end $ 372,694 $ 138,315 $ 248,471 3.56 % 0.06 % 0.10 % 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 2022 2021 2020 (dollars in thousands) 61 $ — $ 1,759 179 1,999 $ — 99 99 $ $ $ 44 434 226 704 96 Note 15—Subordinated Debentures Subordinated debentures outstanding at December 31 are as follows: Due Rate 2022 Amount 2021 Amount (dollars in thousands) Owed to: First Commonwealth Bank June 1, 2028 4.875% until June 1, 2023, then 3-Month LIBOR + 1.845% $ 49,499 $ 49,407 First Commonwealth Bank June 1, 2033 5.50% until June 1, 2028, then 3-Month LIBOR +2.37% First Commonwealth Capital Trust II January 23, 2034 3-Month LIBOR + 2.85% First Commonwealth Capital Trust III April 6, 2034 3-Month LIBOR + 2.85% Total 49,271 30,929 41,238 49,201 30,929 41,238 $ 170,937 $ 170,775 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 rate of 4.875%. The rate remains fixed until June 1, 2023, then adjusts on a quarterly basis to three-month LIBOR + 1.845%. The Bank may redeem the notes, beginning with the interest payment due on June 1, 2023, in whole or in part at a redemption price equal to 100% of the principal amount of the subordinated notes, plus accrued and unpaid interest to the date of redemption. Deferred issuance costs of $0.9 million are being amortized on a straight-line basis over the term of the notes. On May 21, 2018, First Commonwealth Bank also issued fifteen-year subordinated notes with an aggregate principal amount of $50.0 million and a fixed-to-floating rate of 5.50%. The rate remains fixed un til June 1, 2028, then adjusts on a quarterly basis to three-month LIBOR + 2.37%. The Bank may redeem the notes, beginning with the interest payment due on June 1, 2028, in whole or in part, at a redemption price equal to 100% of the principal amount of the subordinated notes, plus accrued and unpaid interest to the date of redemption. Deferred issuance costs of $1.1 million are being amortized on a straight-line basis over the term of the notes. ff rr First Commonwealth currently has two trusts, First Commonwealth Capital Trust II and First Commonwealth Capital Trust III, of which 100% of the common equity is owned by First Commonwealth. The trusts were formed for the purpose of issuing company obligated mandatorily redeemable capital securities to third-party investors and investing the proceeds from the sale of the capital securities solely in junior subordinated debt securities (“subordinated debentures”) of First Commonwealth. The subordinated debentures held by each trust are the sole assets of the trust. rr Interest on the debentures issued to First Commonwealth Capital Trust III is paid quarterly at a floating rate of three-month LIBOR + 2.85% which is reset quarterly. Subject to regulatory approval, First Commonwealth may redeem the debentures, in whole or in part, at its option on any interest payment date at a redemption price equal to 100% of the principal amount of the debentures, plus accrued and unpaid interest to the date of the redemption. Deferred issuance costs of $0.6 million are being amortized on a straight-line basis over the term of the securities. Interest on the debentures issued to First Commonwealth Capital Trust II is paid quarterly at a floating rate of three-month LIBOR + 2.85%, which is reset quarterly. Subject to regulatory approval, First Commonwealth may redeem the debentures, in whole or in part, at its option at a redemption price equal to 100% of the principal amount of the debentures, plus accrued and unpaid interest to the date of the redemption. Deferred issuance costs of $0.5 million are being amortized on a straight-line basis over the term of the securities. In order to reduce its exposure to variability in expected future cash flows related to interest payments on First Commonwealth Capital Trust II and III, the Company entered into two interest rate swap contracts that are designated as cash flow hedges. These contracts fix the LIBOR based portion of the interest rate on Capital Trust II at 1.515% until August 15, 2024 and on Capital Trust III at 1.525% until August 15, 2026. Additional information related to these cash flow hedges can be found in Note 7- "Derivatives". 97 Note 16—Other Long-term Debt Other long-term debt at December 31 follows: Borrowings from FHLB due: 2022 2023 2024 2025 2026 2027 Thereafter Total 2022 2021 Weighted Average Contractual Rate Amount (dollars in thousands) Weighted Average Contractual Rate Amount $ $ 740 769 799 830 863 861 4,862 3.86 % 3.86 3.86 3.87 3.87 3.49 $ $ 712 739 769 799 830 1,724 5,573 3.85 % 3.86 3.86 3.86 3.87 3.68 The weighted average contractual rate reflects the rate due to creditors. The weighted average effective rate of long-term debt is equal to the weighted average contractual rate. 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. Capital securities included in total long-term debt on the Consolidated Statements of Financial Condition are excluded from the above, but are described in Note 15, “Subordinated Debentures.” Note 17—Fair Values of Assets and Liabilities Topic 820 requires disclosures for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). All non-financial assets are included either as a separate line item on the 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. ff rr FASB ASC Topic 825, “Financial Instruments" ("Topic 825"), permits entities to irrevocably elect to measure select financial instruments and certain other items at fair value. The unrealized gains and losses are requir ed to be included in earnings each reporting period for the items that fair value measurement is elected. First Commonwealth has elected not to measure any existing financial instruments at fair value under Topic 825; however, in the future we may elect to adopt this guidance for select financial instruments. rr In accordance with Topic 820, First Commonwealth groups financial assets and financial liabilities measured at fair value in three levels, based on the principal markets in which the assets and liabilities are transacted and the observability of the data points used to determine fair value. These levels are defined in Note 1, "Statement of Accounting Policies." u ff 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 inves 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. tment securities do not trade on a daily basis, the model uses 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. 98 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.” ff ale include residential mortgage loans originated for sale in the secondary mortgage mar Loans held for s 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. ket. The estimated fair ff 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 ff swaps. Interest rate derivatives are further described in Note 7, “Derivatives.” ff 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 e required. We review our counterparty exposure quarterly, and when necessary, ff fair value adjustments related to credit risk ar appropriate adjustments are made to reflect the exposure. We also utilize this approach to estimate our own credit risk on derivative liability positions. In 2022 and 2021, we have not realized any losses due to a counterparty's inability to pay any net uncollateralized position. Interest rate derivatives also include interest rate forwards entered into to hedge residential mortgage loans held for sale and the related interest-rate lock commitments. This includes forward commitments to sell mortgage loans. The fair value of these derivative financial instruments are based on derivative market data inputs as of the valuation date and the underlying value of mortgage loans for rate lock commitments. In addition, the Company hedges foreign currency risk through the use of foreign exchange forwar foreign exchange forward contracts is based on the differential between the contract price and the market-based forward rate. d contracts. The fair value of ff The estimated fair value for other real estate owned included in Level 2 is determined by either an independent market based appraisal less estimated costs to sell or an executed sales agreement. 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 value incorporates credit risk by considering such factors as likelihood of default and expected loss given default based on credit quality of the under lying counterparties (loan customers). ff 99 In accordance with ASU 2011-4, the following table provides information related to quantitative inputs and assumptions used in Level 3 fair value measurements. ff December 31, 2022 Other Investments Nonperforming Loans Fair Value (dollars in thousands) Valuation Technique Unobservable Inputs Range / (weighted average) $ 1,170 Carrying Value N/A 363 (a) Gas Reserve Study Discount rate N/A 10.00% Gas per MMBTU $3.00 - $3.00 (b) Oil per BBL/d $80.00 - $80.00 (b) Limited Partnership Investments 17,691 Par Value N/A N/A N/A N/A 10.00% December 31, 2021 Other Investments Nonperforming Loans 1,170 Carryirr ng Value 598 (a) Gas Reserve study Discount rate Limited Partnership Investments 14,981 Par Value N/A N/A (a) the remainder of nonperforming loans valued using Level 3 inputs are not included in this disclosure as the values of those loans are based on bankruptcy agreement documentation. (b) unobservable inputs are defined as follows: MMBTU—one million British thermal units; BBL/d—barrels per day. Gas per MMBTU $2.00 - $2.00 (b) Oil per BBL/d $50.00 - $50.00 (b) The discount rate is the significant unobservable input used in the fair value measurement of nonperforming loans. Significant increases in this rate would result in a decrease in the estimated fair value of the loans, while a decrease in this rate would result in a higher fair value measurement. Other unobservable inputs in the fair value measurement of nonperforming loans relate to gas, oil and natural gas prices. Increases in these prices would result in an increase in the estimated fair value of the loans, while a decrease in these prices would result in a lower fair value measurement. ff ff 100 The tables below present the balances of assets and liabilities measured at fair value on a recurr ff ing basis at December 31: Obligations of U.S. Government Agencies: Mortgage-Backed Securities—Residential $ Mortgage-Backed Securities—Commercial — $ — $ 3,983 271,416 — $ — 3,983 271,416 2022 Level 1 Level 2 Level 3 Total (dollars in thousands) Obligations of U.S. Government-Sponsored Enterprises: Mortgage-Backed Securities—Residential es Other Government-Sponsored Enterpris Obligations of States and Political Subdivisions Corporate Securities rr Total Securities Available for Sale Other Investments Loans Held for Sale Other Assets (a) Total Assets Other Liabilities (a) Total Liabilities — — — — — — — — $ $ $ — $ — $ — $ 448,989 882 8,187 29,204 762,661 25,244 11,869 50,738 850,512 89,298 89,298 — — — — — 1,170 — 17,691 $ $ $ 18,861 $ — $ — $ 448,989 882 8,187 29,204 762,661 26,414 11,869 68,429 869,373 89,298 89,298 (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 es Other Government-Sponsored Enterpris Obligations of States and Political Subdivisions Corporate Securities rr Total Securities Available for Sale Other Investments Loans Held for Sale Other Assets (a) Total Assets Other Liabilities (a) Total Liabilities 2021 Level 1 Level 2 Level 3 Total (dollars in thousands) $ $ $ $ — $ — — — — — — — — — — $ — $ — $ 5,662 362,290 $ — $ — 5,662 362,290 629,974 981 9,524 32,949 1,041,380 11,668 18,583 26,805 1,098,436 34,263 34,263 $ $ $ — — — — — 1,170 — 14,981 16,151 $ — $ — $ 629,974 981 9,524 32,949 1,041,380 12,838 18,583 41,786 1,114,587 34,263 34,263 (a) Hedging and non-hedging interest rate derivatives and limited partnership investments 101 The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows for the year ended December 31, 2022: 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 ff ff Transfers into Level 3 Balance, end of year Other Investments Other Assets Total (dollars in thousands) $ 1,170 $ 14,981 $ 16,151 — — — — — — — — — 2,991 — (281) — — $ — 1,170 $ — 17,691 $ — — 2,991 — (281) — — — 18,861 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, 2022. During the year ended December 31, 2022, there were no transfers between fair value Levels 1, 2 or 3. The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows for the year ended December 31, 2021: 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 ff Transfers into Level 3 ff Balance, end of year nvestments Other Assets Total (dollars in thousands) $ 1,670 $ 6,619 $ 8,289 — — — — — (500) — — — — 8,511 — — (149) — — — — 8,511 — — (649) — — $ 1,170 $ 14,981 $ 16,151 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, 2021. During the year ended December 31, 2021, there were no transfers between fair value Levels 1, 2 or 3. 102 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 2022 Level 1 Level 2 Level 3 Total (dollars in thousands) $ $ $ $ — $ — — $ 23,140 553 23,693 $ $ 11,636 — 11,636 2021 Level 1 Level 2 Level 3 (dollars in thousands) — $ — — $ 42,538 729 43,267 $ $ 12,247 — 12,247 $ $ $ $ 34,776 553 35,329 Total 54,785 729 55,514 $ $ $ $ Total Gains (Losses) (2,127) — (2,127) Total Gains (Losses) 352 — 352 ff 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 nonperforming loans that are collateral based is determined by reviewing real property appraisals, equipment valuations, accounts receivable listings and other financial information. A discounted cash flow analysis is performed to determine fair value for nonperforming loans when an observable market price or a cur rent 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 ov 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. er. For real estate secured loans with ff A fair value determined by either an independent market based appraisal less estimated costs to sell or an executed sales agreement, is classified as Level 2. The fair value for other real estate owned determined using an internal valuation is classified as Level 3. Other real estate owned had a current carrying value of $0.5 million as of December 31, 2022 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 further impairment, we will record a charge to the extent that the carrying value of the assets exceed their fair values, less estimated costs to sell, as determined by valuation techniques appropriate in the circumstances. 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 ins ff ff 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 measured at fair value on a nonrecurring basis during 2022. truments are not measured at fair value on an ongoing basis but are subject to FASB ASC Topic 825-10, “Transition Related to FSP FAS 107-1” and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those f ff ff assets and financial liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or nonrecurring basis are as discussed above. The methodologies for other financial assets and financial liabilities are discussed below. inancial Cash and due from banks and interest bearing bank deposits bearing bank deposits approximate the estimated fair values of such assets. p g : The carrying amounts for cash and due from banks and interest- Securities: Fair values for available for sale and held to maturity securities are based on quoted market prices, if available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The carrying value of other investments, which includes FHLB stock, is considered a reasonable estimate of fair value. Loans held for sale: The estimated fair value of loans held for sale is based on market bids obtained from po ff tential buyers. 103 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. ff Offff -ff 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, 2022 and 2021. See Note 10, “Commitments and Letters of Credit,” for additional information. ff p : The estimated fair value of demand deposits, savings accounts and money market deposits is the amount Deposit liabilities 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 r ff being offff ered and a schedule of aggregated expected maturities. ate time deposits for both periods are estimated by discounting the future cash flows using interest rates currently ff Short-term borrowingsg : 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. ff Subordinated debt and long-term debt ff future cash flows using First Commonwealth’ : The fair value of long-term debt and subordinated debt is estimated by discounting the ff s estimate of the current market rate for similar types of bor rowing arrangements. g 104 The following table presents carrying amounts and estimated fair values of First Commonwealth’s financial instruments at December 31: 2022 Fair Value Measurements Using: Carrying Amount Total Level 1 Level 2 Level 3 (dollars in thousands) $ $ 124,254 29,990 $ 124,254 29,990 $ 124,254 29,990 — $ — 762,661 461,162 26,414 11,869 7,642,143 762,661 386,205 26,414 11,869 7,639,721 8,005,469 7,992,012 372,694 4,862 170,937 5,425 363,135 4,781 156,621 5,425 — — — — — — — — — — 762,661 386,205 25,244 11,869 23,140 7,992,012 363,135 4,781 — 5,425 — — — — 1,170 — 7,616,581 — — — 156,621 — 2021 Fair Value Measurements Using: Carrying Amount Total Level 1 Level 2 Level 3 (dollars in thousands) $ 84,738 $ 84,738 $ 84,738 $ $ 31 0,634 1,041,380 541,311 12,838 18,583 310,634 1,041,380 536,651 12,838 18,583 6,839,230 7,169,768 7,982,498 7,980,101 138,315 5,573 170,775 5,921 136,473 6,065 175,040 5,921 310,634 — — — — — — — — — — $ — — — 1,041,380 53 6,651 11,668 11,668 18,583 42,538 42,538 7,980,101 13 6,473 6, 065 — 5,921 — — — — 1,170 — 7,127,230 — — — 175 ,040 — Financial assets Cash and due from banks Interest-bearing deposits Securities available for sale Securities held to maturity Other investments Loans held for sale Loans and leases Financial liabilities Deposits Short-term borrowings Long-term debt Subordinated debt Capital lease obligation Financial assets Cash and due from banks Interest-bearing deposits Securities available for sale Securities held to maturity Other investments Loans held for sale Loans and leases Financial liabilities Deposits Short-term borrowings Long-term debt Subordinated debt Capital lease obligation 105 Note 18—Income Taxes The income tax provision for the years ended December 31 is as follows: 2021 2020 (dollars in thousands) Current tax provision: Federal State Total current tax provision Deferff red tax provision (benefit): Federal State Total deferred tax provision Total tax provision $ 33,545 $ 32,586 $ 471 34,016 (1,967) (45) (2,012) 32,004 $ 397 32,983 1,501 76 1,577 34,560 $ 21,629 329 21,958 (5,070) (132) (5,202) 16,756 $ 2020 The statutory to effective tax rate reconciliation for the years ended December 31 is as follows: 2022 2021 Tax at statutory rate $ 33,639 21 % $ 36,292 21 % $ 18,943 21 % Amount % of Pretax Income Amount % of Pretax Income (dollars in thousands) Amount % of Pretax Income Increase (decrease) resulting from: State income tax, net of federal benefit Income frff om bank owned life insurance Tax-exempt interest income, net Tax credits Other 361 (1,146) (809) (341) 300 — (1) (1) — 1 326 (1,351) (846) (127) 266 — (1) — — — 155 (1,376) (1,117) (44) 195 — (1) (1) — — Total tax provision $ 32,004 20 % $ 34,560 20 % $ 16,756 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 from tax-exempt interest, income from bank owned life insurance, and tax benefits associated with low-income housing tax credits. The consistent level of tax benefits that reduce First Commonwealth’s tax rate below the statutory rate produced an annual effective tax rate of 20% for each of the years ended December 31, 2022 and 2021 and 19% for the year ended December 31, 2020. 106 The tax effects of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities that represent significant portions of the deferred tax assets and liabilities at December 31 are presented below: Deferff red tax assets: Lease liability Allowance for credit losses Postretirement benefits other than pensions Unrealized loss on securities available for sale Net operating loss carryforward ff red compensation Deferff Accrued interest on nonaccrual loans Accrued incentives Unfunded loan commitments & other reserves Other Total deferred tax assets Deferff red tax liabilities: Loan origination fees and costs Right of use asset Depreciation of assets Section 197 intangibles Other Total deferred tax liabilities Net deferred tax asset 2022 2021 (dollars in thousands) $ $ 9,581 21,837 223 36,673 37 1,960 935 3,185 2,126 1,205 77,762 (1,320) (8,646) (2,139) (1,717) (197) (14,019) $ 63,743 $ 9,489 19,597 235 2,357 75 1,969 779 2,591 1,363 988 39,443 (253) (8,589) (1,725) (1,107) (308) (11,982) 27,461 The Company has approximately $0.9 million of Pennsylvania net operating losses which begin to expire in 2034 and the Company expects to fully utilize the losses prior to expiration. 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, 2022, 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, 2022. 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 the Internal Revenue Service (“IRS”) as well as all states in which we conduct business. Generally, tax years prior to the year ended December 31, 2019 are no longer open to examination by federal and state taxing authorities. 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, 2020, a participating employee can receive a maximum matching contribution of 4% of their eligible compensation. In addition, each participating employee may contribute up to 80% of their eligible compensation to the plan. The 401(k) plan expense was $2.9 million in 2022, $3.0 million in 2021, and $3.9 million in 2020. First Commonwealth maintains a Non-Qualified Deferred Compensation Plan (“NQDC Plan”) to provide deferred compensation for those employees who are in the top 10% of full-time employees, as determined on the basis of eligible compensation. The NQDC Plan provides participants whose maximum retirement contribution is limited by IRS rules to defer additional compensation. 107 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. Effective January 1, 2020, an employer elective contribution is available to participants who reach the IRS Compensation limits in the 401kPlan. The ‘makeup match’ contribution is made to eligible participants on an annual basis. Effective January 1, 2021, an employer non-elective contribution is available to certain participants determined by the Company. The ‘discretionary’ contribution may be approved from year-to-year and allocated on an annual basis. There was $0.2 million in NQDC Plan expense recognized in 2022, and no NQDC Plan expense recognized in either 2021 and 2020. Select employees from former acquisitions were covered by postretirement benefit plans which provide medical and life insurance coverage. The measurement date for these plans was December 31. Postretirement Benefits Other than Pensions from Prior Acquisitions Net periodic benefit cost of these plans for the years ended December 31, was as follows: Service cost Interest cost on projected benefit obligation Amortization of transition obligation Amortization of prior service cost Gain amortization Net periodic benefit cost 2022 2021 2020 (dollars in thousands) — $ — $ 35 — 75 (96) 14 $ 23 — 76 (27) 72 $ — 23 — — (52) (29) $ $ The following table sets forth the change in the benefit obligation and plan assets as of December 31: Change in Benefit Obligation Benefit obligation at beginning of year Service cost Interest cost Amendments Actuarial gain Net benefits paid Benefit obligation at end of year Change in Plan Assets Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Net benefits paid Fair value of plan assets at end of year Funded Status at End of Year Unrecognized prior service cost Unrecognized net gain Amounts recognized in retained earnings As of December 31, the funded status of the plan is: Amounts Recognized in the Statement of Financial Condition as Other liabilities 108 2022 2021 (dollars in thousands) $ 986 $ 1,372 — 22 — (212) (88) 708 — — 88 (88) — 708 (386) 728 1,050 $ — 23 — (302) (107) 986 — — 107 (107) — 986 (461) 584 1,109 2022 2021 (dollars in thousands) 708 $ 986 $ $ The following table sets forth the amounts recognized in accumulated other comprehensive income that have not yet been recognized as components of net periodic benefit costs as of December 31: Amounts recognized in accumulated other comprehensive income, net of tax: Net (gain) loss Prior service cost Total 2022 2021 2020 (dollars in thousands) $ $ (575) $ 305 (270) $ (461) $ 364 (97) $ (243) 424 181 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 2022 2021 2020 5.31 % 6.50 % 4.75 % 2028 2.38 % 5.90 % 4.75 % 2027 1.83 % 5.95 % 4.75 % 2026 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 2022 2021 2020 2.38 % 5.90 % 4.75 % 2027 10.00 % 9.9 1.83 % 5.95 % 4.75 % 2026 10.00 % 10.4 2.88 % 5.55 % 4.75 % 2025 10.00 % 10.9 The Medicare Prescription Drug, Improvement and Modernization Act of 2003 introduced a prescription drug benefit under Medicare Part D and a federal subsidy to sponsors of retiree health care benefit plans that provide a prescription drug benefit that is at least actuarially equivalent to Medicare Part D. The postretirement plans of First Commonwealth are provided through insurance coverage; therefore, First Commonwealth will not receive a direct federal subsidy. The preceding measures of the accumulated postretirement benefit cost assume that First Commonwealth will not receive the subsidy due to the relatively small number of retirees. As of December 31, 2022, the projected benefit payments for the next ten years are as follows: ff 2023 2024 2025 2026 2027 2028 - 2032 Projected Benefitff Payments (dollars in thousands) $ 105 99 93 87 79 287 The projected payments were calculated using the same assumptions as those used to calculate the benefit obligations included in this note. 109 The estimated costs that will be amortized from accumulated other comprehensive income into net periodic cost for 2023 are as ff follows: Net gain Prior service cost Total Note 20—Incentive Compensation Plan Postretirement Benefits (dollars in thousands) $ $ (96) 76 (20) On January 20, 2009, the Board of Directors of the Company adopted, with shareholder approval, the First Commonwealth Financial Corporation Incentive Compensation Plan. This plan allows for shares of common stock to be issued to employees, directors, and consultants of the Company and its subsidiaries as an incentive to aid in the financial success of the Company. The shares can be issued as options, stock appreciation rights, performance share or unit awards, dividend or dividend equivalent rights, stock awards, restricted stock awards, or other annual incentive awards. Up to 5,000,000 shares of stock can be awarded under this plan, of which 2,115,605 shares were still eligible for awards as of December 31, 2022. Restricted Stock The following provides detail on the restricted stock awards which were issued and outstanding in 2022, 2021 and 2020 in order to retain and attract key employees. The grant date fair value of the restricted stock awards is equal to the price of First Commonwealth’s common stock on grant date. ff Grant Date March 28, 2022 February 17, 2022 January 3, 2022 December 13, 2021 December 9, 2021 November 22, 2021 November 19, 2021 September 27, 2021 June 14, 2021 February 18, 2021 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 Shares issued Grant Price Vesting Date Number of Equal Vesting Periods 50,000 $ 57,000 1,000 2,000 1,000 1,565 24,000 6,000 15,000 84,950 95,300 63,000 15,000 2,000 3,000 2,000 77,500 5,000 7,000 15.46 March 28, 2025 16.43 February 17, 2025 16.25 January 3, 2025 rr 14.83 December 13, 2024 15.07 December 9, 2024 15.96 November 22, 2024 15.81 November 19, 2024 13.78 September 27, 2024 14.58 June 1, 2024 12.77 February 18, 2024 13.72 February 20, 2023 14.22 February 22, 2022 14.22 February 22, 2022 13.82 November 26, 2021 15.44 May 29, 2021 14.08 March 26, 2021 14.49 February 26, 2021 12.99 March 24, 2020 12.99 March 24, 2020 1 1 1 1 1 1 1 1 3 1 1 1 1 1 1 1 1 1 1 Compensation expense related to restricted stock was $3.7 million, $3.1 million and $2.9 million in 2022, 2021 and 2020, respectively. As of December 31, 2022, there was $4.3 million of unrecognized compensation cost related to unvested restricted stock awards granted. 110 A summary of the status of First Commonwealth’s unvested service-based restricted stock awards as of December 31 and changes for the years ended on those dates is presented below: Outstanding, beginning of the year Granted Vested Forfeited Outstanding, end of the year 2022 2021 2020 $ Weighted Average Grant Date Fair Value 13.82 15.98 14.24 13.11 14.48 Shares 286,015 108,000 (75,500) (7,250) 311,265 $ Weighted Average Grant Date Fair Value 14.13 13.64 14.46 13.66 13.82 Shares 250,800 134,515 (88,389) (10,911) 286,015 $ Weighted Average Grant Date Fair Value 14.27 13.72 12.99 13.85 14.13 Shares 171,500 95,300 (12,000) (4,000) 250,800 The following provides detail on restricted stock awards estimated to be granted on a performance award basis during 2022, 2021 and 2020. These plans were previously approved by the Board of Directors. rant Date December 30, 2015 February 22, 2018 February 21, 2019 February 20, 2020 February 18, 2021 February 17, 2022 rr rr rr rr rr Target Share Award 60,000 102,000 121,900 125,800 143,400 121,200 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, 2020 December 31, 2021 December 31, 2022 December 31, 2023 December 31, 2024 The following table summarizes the estimated unvested target share awards for the Plans as of December 31: Outstanding, beginning of the year Granted Issued Forfeited Outstanding, end of the year 2022 2021 2020 391,100 200,503 (157,251) — 434,352 434,180 143,400 (158,531) (27,949) 391,100 442,832 125,800 (134,452) — 434,180 Based on a Monte Carlo simulation, the above grants have the following fair market values per share: Proportional Fair Value 50% 25% 25% $ 13.29 $ 13.29 $ 14.17 14.22 13.72 12.77 16.56 13.25 16.62 15.37 11.45 15.20 15.09 15.83 13.07 12.43 16.41 21.08 February 23, 2017 February 22, 2018 rr February 21, 2019 rr February 20, 2020 rr February 18, 2021 rr February 17, 2022 rr 111 Note 21—Contingent Liabilities g Legal proceedings g p 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, 2022, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against First Commonwealth or its subsidiaries will be material to First Commonwealth’s consolidated financial position. On at least a quarterly basis, First Commonwealth assesses its liabilities and contingencies in connection with such legal proceedings. For those matters where it is probable that First Commonwealth will incur losses and the amounts of the losses can be reasonably estimated, First Commonwealth records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. Although not considered probable, the range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability (if any), is between $0 and $1 million. Although First Commonwealth does not believe that the outcome of pending litigation will be material to First Commonwealth’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations and cash flows for a particular reporting period in the future. Note 22—Revenue Recognition ff Substantially all of the Company’s revenue is generated from contracts with customers. Revenue associated with financial instruments, including revenue from loans and securities, certain noninterest income streams such as fees associated w ith derivatives are not in scope of FASB ASU Topic 606 - "Revenue from Contracts with Customers". Topic 606 is applicable to noninterest revenue streams such as trust income, service charges on deposits, insurance and retail brokerage commissions, card related interchange income and gain(loss) on sale of OREO. For contracts within the scope of Topic 606, the Company immediately expenses contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. p Noninterest revenue streams in-scope of Topic 606 are discussed below: p f TrTT ust 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. ff 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 ff 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 r ecognized 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 s accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. ervice is provided. Payment for service charges on deposit ff ff InsII urance 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 112 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. ff Retail brokerage income primarily consists of commissions received on annuity and investment product sales through a third- party service provider. The Company’s performance obligation is generally satisfied upon the issuance of the annuity policy or the execution of an investment transaction. The Company does not earn a significant amount of trailer fees on annuity sales. However, after considering the factors impacting these trailer fees, such as the uncertainty of investor behavior and changes in the market value of assets, First Commonwealth determined that it would recognize trailing fees as received because it could not reasonably estimate an amount of future trailing commissions for which collection is probable. Commissions from the third- party service provider are received on a monthly basis based upon customer activity for the month. The fees are recognized monthly with a receivable until commissions are received from the third-party service provider the following month. Because the Company acts as an agent in arranging the relationship between the customer and the third-party service provider and does not control the services rendered to the customers, retail brokerage fees are presented net of related costs, including $4.0 million and $3.7 million, respectively, in commission expense as of December 31, 2022 and 2021. Card Related Interchange Income Card related interchange income is primarily comprised of debit and credit card income, ATM fees and merchant services income. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as MasterCard. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Card related interchange income is recognized at the point in time as the customer transactions are settled. 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 ff First Commonwealth records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When First Commonwealth finances the sale of OREO to the buyer, an assessment of whether the buyer is committed to perform their obligations under the contract is completed along with an evaluation of whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon transfer of control of the property to the buyer. In determining the gain or loss on the sale, First Commonwealth adjusts the transaction price and related gain(loss) on sale if a significant financing component is present. The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606 for the year ended December 31: ff 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 2022 2021 2020 (dollars in thousands) $ $ 10,518 19,641 8,857 27,603 455 4,036 71,110 27,598 98,708 $ $ 11,111 17,984 8,502 27,954 753 4,184 70,488 36,269 106,757 $ $ 9,101 16,387 7,850 23,966 967 3,675 61,946 32,530 94,476 113 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 same terms, such as collateral and interest rates, as those prevailing at the time for comparable transactions. In the opinion of management, these transactions do not involve more than the normal risk of collectability nor do they present other unfavorable ff features. It is anticipated that similar transactions w ill be entered into in the future. The following is an analysis of loans to related parties (dollars in thousands): ff December 31, 2021 Advances Repayments Other December 31, 2022 Note 24—Regulatory Restrictions and Capital Adequacy $ $ 18,953 928 (900) 327 19,308 The amount of funds available to the parent from its sub 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 affiliates. sidiary bank is limited by restrictions imposed on all depositoryrr ff First Commonwealth and First Commonwealth Bank are subject to various regulatory capital requirements administered by the feder al banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional ff discretionary actions by regulators which, if undertaken, could have a direct material effect on First Commonwealth’s financial statements. Under capital adequacy guidelines and the regulatory framework for pr ompt corrective action, First Commonwealth and First Commonwealth Bank must meet specific capital guidelines that involve quantitative measures of First Commonwealth’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. First Commonwealth’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors. ff ff ff Effff ective January 1, 2015, First Commonwealth became subject to regulatory risk-based capital rules adopted by the feder banking agencies implementing Basel III. The capital rules require First Commonwealth to maintain the following minimum capital levels: al • • • • 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% ff a minimum Common Equity Tier 1 to risk weighted assets of at least 4.5%, plus the capital conservation buffer of 2.5%, resulting in a required minimum ratio of 7%. a minimum Total Capital to risk weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer, resulting in a required minimum of 10.5% 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. The Company elected to retain this treatment, which reduces the volatility of regulatory capital levels. During the second quarter of 2018, First Commonwealth Bank, the Company's banking subsidiary, issued $100 million in subordinated debt, which under regulatory rules qualifies as Tier II capital. This subordinated debt issuance increased the total risk-based capital ratio by 160 basis points. As of December 31, 2022, the Company had $4.3 million in PPP loans outstanding under the CARES Act. Because these loans are 100% guaranteed by the SBA, banking regulators confirmed that they have a zero percent risk weight under applicable risk- based capital rules. Additionally, a bank may exclude all PPP loans pledged as collateral to the Federal Reserve's PPP Facility frff om average total assets when calculating its leverage ratio, while PPP loans that are not pledged as collateral to the PPP Facility will be included. The PPP loans originated by the Company are included in our leverage ratio as of December 31, 2022, as we did not utilize the PPP Facility. 114 In March 2020, regulators issued interim financial rule (“IFR”) “Regulatory Capital Rule: Revised Transition of the Current Expected Losses Methodology for Allowances” in response to the disrupted economic activity from the pandemic. The IFR provides financial institutions that adopt CECL during 2020 with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided by the initial two-year delay (“five-year transition”). The Company adopted CECL effective January 1, 2020 and elected to implement the five-year transition. Regulatory capital levels without the capital benefit at December 31, 2022 for both First Commonwealth and First Commonwealth Bank would have continued to be greater than the amounts needed to be considered “well capitalized”, as the transition provided a capital benefit of approximately 7 to 15 basis points. As of December 31, 2022 and 2021, 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: 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, 2022 Total Capia tal to Risk Weighted Assets First Commonwealth Financial Corporation $ 1,160,053 14.36 % $ 848,288 10.50 % $ 807,893 10.00 % First Commonwealth Bank Tier I Capital to Risk Weighted Assets 1,100,529 13.65 846,593 10.50 806,279 10.00 First Commonwealth Financial Corporation $ 966,072 11.96 % $ 686,709 8.50 % $ 646,314 8.00 % First Commonwealth Bank Tier I Capital to Average Assets 906,548 11.24 685,337 8.50 645,023 8.00 First Commonwealth Financial Corporation $ 966,072 10.18 % $ 379,527 4.00 % $ 474,408 5.00 % First Commonwealth Bank 906,548 9.58 378,578 4.00 473,223 5.00 Common Equity Tier I to Risk Weighted Assets First Commonwealth Financial Corporation $ 896,072 11.09 % $ 565,525 7.00 % $ 525,131 6.50 % First Commonwealth Bank 906,548 11.24 564,395 7.00 524,081 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, 2021 Total Capia tal to Risk Weighted Assets First Commonwealth Financial Corporation $ 1,071,965 14.64 % $ 768,72 3 10.50 % $ 732,118 10.00 % First Commonwealth Bank Tier I Capital to Risk Weighted Assets 1,041,8 54 14.26 767,321 10.50 730,782 10.00 First Commonwealth Financial Corporation $ 894,670 12.22 % $ 62 2,300 8.50 % $ 585,694 8.00 % First Commonwealth Bank Tier I Capital to Average Assets 86 4,559 11 .83 621,165 8.50 584,626 8.00 First Commonwealth Financial Corporation $ 894,670 9.73 % $ 367,656 4.00 % $ 459,570 5.00 % First Commonwealth Bank 86 4,559 9.4 3 366,839 4.00 458,549 5.00 Common Equity Tier I to Risk Weighted Assets First Commonwealth Financial Corporation $ 824,670 11.26 % $ 51 2,482 7.00 % $ 475,876 6.50 % First Commonwealth Bank 86 4,559 11 .83 511,547 7.00 475,008 6.50 115 Note 25—Capital At December 31, 2022, shareholders’ equity was $1.1 billion, a decrease of $57.3 million from December 31, 2021. The decrease was due to a $128.9 million decrease in the fair value of available for sale securities, $44.6 million of dividends paid to shareholders and $15.6 million of common stock repurchases. These decreases were partially offset by $128.2 million in net income and $2.2 million in treasury stock sales. Cash dividends declared per common share were $0.475, $0.455 and $0.440 for the years ended December 31, 2022, 2021 and 2020, respectively. In October 2021, the Board of Directors authorized a $25.0 million share repurchase program of the Company's common stock. As of December 31, 2022, 1,371,019 shares at an average price of $13.92 have been repurchased. First Commonwealth may suspend or discontinue the program at any time. Note 26—Condensed Financial Information of First Commonwealth Financial Corporation (parent company only) tion Assets Cash Loans Investment in subsidiaries Investment in unconsolidated subsidiary trusts Investment in jointly-owned company Premises and equipment, net Dividends receivable from 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 Income before taxes and equity in undistributed earnings of subsidiaries Applicable income tax benefits Income before equity in undistributed earnings of subsidiaries Equity in undistributed earnings of subsidiaries Net income December 31, 2022 2021 (dollars in thousands) $ $ $ $ 37,695 8 11,649 9 1,061,285 1,152,580 2,200 394 3,098 5,428 21,345 1,131,453 7,212 72,167 $ $ 2,181 357 3,244 7,762 8,212 1,185,994 4,455 72,167 1,052,074 1,109,372 $ 1,131,453 $ 1,185,994 For the years ended December 31, 2022 2021 2020 (dollars in thousands) $ $ 78 92,082 (3,245) 112 (4,747) 84,280 1,625 85,905 $ 4 72,202 (3,205) — (4,721) 64,280 1,646 65,926 42,276 128,181 $ 72,331 138,257 $ $ 8 61,708 (3,229) 3 (4,687) 53,803 1,648 55,451 17,996 73,447 116 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 Other net Net cash provided by operating activities Investing Activities Net change in loans Purchases of premises and equipment Net cash used in investing activities Financing Activities Dividends paid Proceeds frff om 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, 2022 2021 2020 (dollars in thousands) $ 128,181 $ 138,257 $ 73,447 335 (113) — (42,276) — 86,127 2 (152) (150) 369 228 317 (72,330) (14,830) 52,011 2 (101) (99) 383 — (317) (17,996) 19,705 75,222 1 (20) (19) (44,578) (43,611) (42,982) 245 (15,598) (59,931) 26,046 11,649 222 (31,301) (74,690) (22,778) 34,427 $ 37,695 $ 11,649 $ 222 (20,905) (63,665) 11,538 22,889 34,427 Cash dividends declared per common share were $0.475 for 2022, $0.455 in 2021 and $0.440 in 2020. First Commonwealth Financial Corporation has an unsecured $20.0 million line of credit with another financial institution. As of December 31, 2022, there are no amounts outstanding on this line and we are in compliance with all debt covenants related to the line of credit. 117 Report of 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, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash flowff December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. s for each of the three years in the period ended ff 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, 2022, 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 February 27, 2023 expressed an unqualified opinion thereon. 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 rr rules and regulations of the Securities and Exchange Commis sion and the PCAOB. ff 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 frff aud. Our audits included performing procedures to ass 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. ess the risks of material misstatement of the financial ff ff ff ff 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. ff 118 Description of the Matter Allowance for Credit Losses First Commonwealth’s loan and lease portfolio totaled $7.6 billion as of December 31, 2022 and the associated Allowance for Credit Losses (ACL) was $102.9 million. As discussed in Notes 1 and 9 of the financial statements, the ACL represents management’s current estimate of lifetime credit losses inherent in the loan portfolio at the balance sheet date. 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 macroeconomic factors, using a weighted forecast from a nationally recognized firm. 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. 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 of 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. 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, and independently recalculating model output with the assis EY specialists. We also verified the underlying economic forecast data used to estimate the quantitative reserve was complete and accurate. tance of ff 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. 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 and lease portfolio by comparing to historical losses and peer bank data. ff /s/ Ernst & Young LLP We have served as the Company’s auditor since 2019. Pittsburgh, Pennsylvania February 27, 2023 rr 119 Report of 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, 2022, 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, 2022, 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, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 27, 2023 expressed an unqualified opinion thereon. Basis for Opinion ff The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectivenes s 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 rr rules and regulations of the Securities and Exchange Commis sion and the PCAOB. ff 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 material 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. ff Definit ion 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 ff . 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 February 27, 2023 120 ITEM 9. None. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure g g g 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 dis ff 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. closure controls 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. Ernst & Young LLP, Pittsburgh, Pennsylvania, (U.S. PCAOB Auditor Firm I.D.: 42), the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an audit report on the effectiveness of our internal control over financial reporting as of December 31, 2022. The report, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2022, is included at the end of Item 8 under the heading Report of "Independent Registered Public Accounting Firm.” 121 MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING First Commonwealth is responsible for the preparation, the integrity, and the fair presentation of the Consolidated Financial Statements included in this annual report. The Consolidated Financial Statements and notes to the financial statements have been prepared in conformity with generally accepted accounting principles and include some amounts based upon management’s best estimates and judgments. 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 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 including First Commonwealth’s principal executive officer and principal financial officer, First Commonwealth conducted an evaluation of the effectiveness of internal control over financial reporting based on criteria established in Internal Control- II Integr ated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . Under the supervision and with the participation of management, ff rr All internal control systems, no matter how well designed, have inherent limitations, including the possibility that a control can be circumvented and that misstatements due to error or fraud may occur without detection. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. ff Based on First Commonwealth’s evaluation based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), management concluded that internal control over financial reporting was effective as of December 31, 2022. The effectiveness of First Commonwealth’s internal control over financial reporting as of December 31, 2022 has been audited by Ernst & Young, LLP, an independent registered public accounting firm, as stated in their audit report which is included herein. ff First Commonwealth Financial Corporation Indiana, Pennsylvania February 27, 2023 /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 122 ITEM 9B. Other Information Disclosure Regarding Foreign Jurisdictions that Prevent Inspections p g g g None. ITEM 9C. None. 123 PART III ITEM 10. Directors, Executive Officers and Corporate Governance p , Information called for by this item concerning the identification, business experience and qualifications of First Commonwealth’s directors will be included in First Commonwealth’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the annual meeting of shareholders to be held April 25, 2023 (the “Proxy Statement”), under the heading “Proposal 1—Election of Directors,” and is incorporated herein by reference. Information called for by this item concerning First Commonwealth’s compliance with section 16(a) of the Exchange Act will be included in the Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Compliance,” and is rr incorpor ated herein by reference. First Commonwealth has adopted a code of conduct and ethics that applies to all employees of the Company, including executive officers. In addition, First Commonwealth has adopted a code of ethics for the Chief Executive Officer and all senior financial of ff fff icers of the Company. Both of these codes are filed as exhibits to this Annual Report on Form 10-K and are posted ff on First Commonwealth’s website at http://www.fcbanking.com. Refer to Item 15 of this Annual Report on Form 10-K for a list of exhibits. Information called for by this item concerning First Commonwealth’s Audit Committee and the identification of “Audit Committee financial experts” will be included in the Proxy Statement under the heading “Corporate Governance,” and is rr incorpor ated 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. ff 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. ff ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters p y g ff 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 table provides information related to our existing equity compensation plans as of December 31, 2022: Plan Categoryg y Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total Number of securities to be issued upon exercise of outstanding options, warrants and rights 434,352 N/A 434,352 Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available forff future issuance ff under equity compensation plans N/A N/A N/A 2,115,605 N/A 2,115,605 The number of securities to be issued upon exercise of outstanding option, warrants and rights represent the maximum number of shares that may be issued pursuant to outstanding performance units. 124 ITEM 13. Certain Relationships and Related Transactions, and Director Independence p p , 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 rr incorpor ated 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 p 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 “Audit Information,” and is incorporated herein by reference. 125 PART IV ITEM 15. Exhibits, Financial Statements and Schedules , (A) Documents Filed as Part of this Report Financial Statements (1) All financial statements of the registrant as set forth under 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 y Incorporated by Reference to 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 Deferred Compensation Plan (formerly known as the Supplemental Executive Retirement Plan) ff Amendment No. One to Amended and Restated Non- Qualified Deferred Compensation Plan Amendment No. Two to Amended and Restated Non- Qualified Deferred Compensation Plan Amendment No. Three to Amended and Restated Non- Qualified Deferred Compensation Plan 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 rr Exhibit 10.1 to the current report on Form 8- K filed December 21, 2017 ff Exhibit 10.1 to the quarterly report on Form 10-Q for the quarter ended September 30, 2021 Exhibit 10.2 to the quarterly report on Form 10-Q for the quarter ended September 30, 2021 Exhibit 10.3 to the quarterly report on Form 10-Q for the quarter ended September 30, 2021 Exhibit 10.1 to the current report on Form 8- K filed January 5, 2012 ff 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 filed January 5, 2012 ff First Commonwealth Financial Corporation Incentive Compensation Plan 10.8 2022 Annual Incentive Plan 2020-2022 Long-Term Incentive Plan 2021-2023 Long-Term Incentive Plan 2022-2024 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 for the quarter ended March 31, 2022 Exhibit 10.2 to the quarterly report on Form 10-Q for the quarter ended March 31, 2020 Exhibit 10.2 to the quarterly report on Form 10-Q for the quarter ended March 31, 2021 Exhibit 10.2 to the quarterly report on Form 10-Q for the quarter ended March 31, 2022 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 Exhibit 10.13 to the annual report on Form 10-K filed March 5, 2012 Schedule Number I II Exhibit Number 3.1 3.2 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.9 10.10 10.11 10.12 10.13 126 Exhibit Number 10.14 10.15 10.16 10.17 10.18 10.19 10.20 10.21 10.22 21.1 23.1 31.1 31.2 32.1 32.2 101.00 Descriptionp Change of Control Agreement dated December 30, 2011 entered into between FCFC and Matthew C. Tomb Employment Agreement dated April 10, 2014 between First Commonwealth Financial Corporation and James R. Reske 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 p y Incorporated by Reference to Exhibit 10.14 to the annual report on Form 10-K filed March 5, 2012 Exhibit 10.1 to the current report on Form 8-K filed April 10, 2014 ff Exhibit 10.3 to the current report on Form 8-K filed April 10, 2014 ff 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 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 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, 2022, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at December 31, 2022 and December 31, 2021, (ii) the Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020, (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020, (iv) the Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2022, 2021 and 2020, (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020, and (vi) the Notes to Consolidated Financial Statements. ITEM 16. Form 10-K Summaryy None. 127 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Indiana, Pennsylvania. SIGNATURES FIRST COMMONWEALTH FINANCIAL CORPORATION (Registrant) By: /S/ T. Michael Price T. Michael Price President and Chief Executive Officer 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. Dated: February 27, 2023 Signature g y Capacity p Date /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/ Patrica A. Husic Patricia A. Husic /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 128 Director Director Director Director Director February 27, 2023 February 27, 2023 February 27, 2023 February 27, 2023 February 27, 2023 Director, Chairman February 27, 2023 Executive Vice President and Chief Revenue Officer ff Director Director Director Director Director February 27, 2023 February 27, 2023 February 27, 2023 February 27, 2023 February 27, 2023 February 27, 2023 President and Chief Executive Officer (Principal Executive Officer) February 27, 2023 Executive Vice President, Chief Financial Officer, and Treasurer ff Director Director February 27, 2023 February 27, 2023 February 27, 2023 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 1100 N. Market Street, 4th Floor Wilmington, DE 19890 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 p g g Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the following Registration Statements: (1) Registration Statement (Form S-3 No. 333-187288) of First Commonwealth Financial Corporation, and (2) Registration Statement (Form S-8 No. 333-159090) of First Commonwealth Financial Corporation, and (3) Registration Statement (Form S-8 No. 333-238312) of First Commonwealth Financial Corporation of our reports dated February 27, 2023, 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, 2022. /s/ Ernst & Young LLP Pittsburgh, Pennsylvania February 27, 2023 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 fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 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 for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 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 the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions): a) b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. ff February 27, 2023 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 fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 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 for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 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 the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occur red during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 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 in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. ff February 27, 2023 Date James R. Reske /S/ Signature Executive Vice President, Chief Financial Officer and Treasurer Title ff , 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, 2022, fully complies with the requirements of Section 13( information contained in such report fairly presents the end of such period and the results of operations of First Commonwealth for such period. a) or 15(d) of the Securities Exchange Act of 1934 and that the , in all material respects, the financial condition of First Commonwealth at ff ff DATED: February 27, 2023 /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 Fir Corporation (“First Commonwealth”), certify that the Annual Report of First Commonwealth on Form 10-K for the period ended December 31, 2022, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of First Commonwealth at the end of such period and the results of operations of First Commonwealth for such period. st Commonwealth Financial ff DATED: February 27, 2023 James R. Reske /S/ James R. Reske Executive Vice President, Chief Financial Officer and Treasurer ff Shareholder Information Annual Meeting The Annual Meeting of Shareholders will be held virtually via a live audio webcast on Tuesday, April 25, 2023 beginning at 2:00 p.m. Eastern Time. To join the Annual Meeting, visit https://meetnow.global/MVFSKR2 and enter the control number found on the proxy card or Notice of Internet Availability of Proxy Materials. Common Stock First Commonwealth Financial Corporation common stock is listed on the New York Stock Exchange (NYSE) and is traded under the symbol FCF. Current market prices for First Commonwealth Financial Corporation common stock can be obtained from your local stock broker or by calling the Corporation at 724-349-7220 or 1-800-711-2265. Transfer Agent Computershare P.O. Box 43006 Providence, RI 02940-3006 Telephone: 1-866-203-5173 www.computershare.com/investor Dividend Payments Subject to the approval of the Board of Directors, quarterly cash dividends are paid in the months of February, May, August and November. Dividend Reinvestment First Commonwealth Financial Corporation’s direct stock purchase and dividend reinvestment plan offers shareholders an opportunity to reinvest their dividends in additional shares of the Corporation’s common stock. Once enrolled in the plan, participants may also purchase shares through voluntary cash investments. For more information on the plan, please call Computershare at 1-866-203-5173. Direct Deposit of Dividends For information about direct deposit of dividends to your U.S. bank account, please visit www.computershare.com/investor or contact Computershare at 1-866-203-5173. Investor/Shareholder Inquiries Requests for information or assistance regarding investor/shareholder inquiries should be directed to the Corporation at 724-349-7220 or 1-800-711-2265 or InvestorRelations@fcbanking.com. First Commonwealth Financial Corporation 601 Philadelphia Street Indiana, Pennsylvania 15701-0400 (724) 349.7220 (800) 711.BANK (2265) fcbanking.com 

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