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
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24
25
26
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28
51
52
121
121
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128
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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.
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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
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to confirm that the project will be economically feasible and f
inancially viable upon completion and is generally conducted as
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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
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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.
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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
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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.
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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
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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.
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Human Capital Resources
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Workfor
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ce Composition and Demographics
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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
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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
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interns for the banking industry, which resulted in hir
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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.
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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
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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.
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TT
Talent Development
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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.
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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
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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.
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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
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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.
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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,
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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
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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
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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
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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.
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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.
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Bank Holding Company Regulation
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p
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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
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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
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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
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may require divestiture of the holding company’s depository institutions.
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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.
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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
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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
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SEC Regulations. First Commonwealth is also under the jurisdiction of the Securities and Exchange Commission (“SEC”) and
various state securities commissions for matters relating to the offer and sale of its securities and is subject to the SEC rules and
regulations relating to periodic reporting, proxy solicitation and insider trading.
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
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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
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ormance less than
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satisfactor
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y may be the basis for denying an application. For its most recent examination, FCB received a “satisfactor
y” rating.
inancial
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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
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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
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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,
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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.
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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%);
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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.
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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.
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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.
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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
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purpos
e of applying prompt corrective action regulations, and the
es.
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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
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deems the institution to be engaging in an unsafe or unsound practice.
e or unsound condition or
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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
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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
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prepaid product.
filiated networks for routing trans
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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
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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
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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
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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
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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
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O
Office of For
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eign Assets Control Regulation
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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
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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
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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
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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
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financial penalties.
o expected to develop appropriate processes to enable recovery of data and business operations and
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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.
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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
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further discussion of risks related to cybersecurity.
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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.
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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.
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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,
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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.
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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
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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
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We May Be Adversely Impacted by the Transition fr
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om LIBOR as a Reference Rate
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In 2017, the United Kingdom’s Financial Conduct Authority (“FCA”) announced that after 2021 it would no longer compel
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banks to submit the rates required to calculate the London Interbank Of
fered Rate (“LIBO
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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
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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
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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
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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.
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Our Allowance for Credit Losses may be Insufficient
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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
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17
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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
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Liquidity Risk
We Are Subject to Liquidity Risk
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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
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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,
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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.
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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
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The Value of Our Goodwill and Other Intangible Assets May Decline in the Future
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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
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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
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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
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certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any
failur
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or failure to comply with our corporate governance policies and procedures could have a material adverse effect on our
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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
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DATED: February 27, 2023
James R. Reske
/S/
James R. Reske
Executive Vice President, Chief Financial Officer and Treasurer
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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