0000712537fcf:ReserveStudyMemberfcf:DiscountRatesMemberfcf:ImpairedLoansMembersrt:WeightedAverageMember2020-01-012020-06-30

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 2020
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission File Number 001-11138
First Commonwealth Financial Corporation
(Exact name of registrant as specified in its charter)
Pennsylvania25-1428528
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
601 Philadelphia Street
IndianaPA15701
(Address of principal executive offices)(Zip Code)
724-349-7220
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x    Accelerated filer  ¨    Smaller reporting company Emerging growth company  
Non-accelerated filer  ¨ (Do not check if a smaller reporting company) 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No x
The number of shares outstanding of issuer’s common stock, $1.00 par value, as of May 7,August 6, 2020, was 98,134,697.98,132,697.


Table of Contents


FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
 
  PAGE
PART I.
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
PART II.
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.

2

Table of Contents



ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)

March 31, 2020December 31, 2019June 30, 2020December 31, 2019
(Unaudited)
(dollars in thousands, except share data) (dollars in thousands, except share data)
AssetsAssetsAssets
Cash and due from banksCash and due from banks$118,413  $102,346  Cash and due from banks$108,970  $102,346  
Interest-bearing bank depositsInterest-bearing bank deposits15,762  19,510  Interest-bearing bank deposits348,763  19,510  
Securities available for sale, at fair valueSecurities available for sale, at fair value972,626  902,292  Securities available for sale, at fair value902,140  902,292  
Securities held to maturity, at amortized cost (Fair value of $327,592 and $338,718 at March 31, 2020 and December 31,2019, respectively)318,256  337,123  
Securities held to maturity, at amortized cost (Fair value of $307,874 and $338,718 at June 30, 2020 and December 31,2019, respectively)Securities held to maturity, at amortized cost (Fair value of $307,874 and $338,718 at June 30, 2020 and December 31,2019, respectively)297,986  337,123  
Other investmentsOther investments19,415  16,761  Other investments12,272  16,761  
Loans held for saleLoans held for sale25,783  15,989  Loans held for sale30,409  15,989  
Loans:Loans:Loans:
Portfolio loansPortfolio loans6,313,944  6,189,148  Portfolio loans6,922,075  6,189,148  
Allowance for credit lossesAllowance for credit losses(79,075) (51,637) Allowance for credit losses(81,441) (51,637) 
Net loansNet loans6,234,869  6,137,511  Net loans6,840,634  6,137,511  
Premises and equipment, netPremises and equipment, net136,896  137,268  Premises and equipment, net134,780  137,268  
Other real estate ownedOther real estate owned2,697  2,228  Other real estate owned1,634  2,228  
GoodwillGoodwill303,328  303,328  Goodwill303,328  303,328  
Amortizing intangibles, netAmortizing intangibles, net15,563  16,366  Amortizing intangibles, net14,744  16,366  
Bank owned life insuranceBank owned life insurance222,132  220,723  Bank owned life insurance223,114  220,723  
Other assetsOther assets129,365  97,328  Other assets145,881  97,328  
Total assetsTotal assets$8,515,105  $8,308,773  Total assets$9,364,655  $8,308,773  
LiabilitiesLiabilitiesLiabilities
Deposits (all domestic):Deposits (all domestic):Deposits (all domestic):
Noninterest-bearingNoninterest-bearing$1,751,524  $1,690,247  Noninterest-bearing$2,288,299  $1,690,247  
Interest-bearingInterest-bearing5,171,564  4,987,368  Interest-bearing5,493,902  4,987,368  
Total depositsTotal deposits6,923,088  6,677,615  Total deposits7,782,201  6,677,615  
Short-term borrowingsShort-term borrowings146,971  201,853  Short-term borrowings108,484  201,853  
Subordinated debenturesSubordinated debentures170,490  170,450  Subordinated debentures170,531  170,450  
Other long-term debtOther long-term debt56,755  56,917  Other long-term debt56,590  56,917  
Capital lease obligationCapital lease obligation6,710  6,815  Capital lease obligation6,602  6,815  
Total long-term debtTotal long-term debt233,955  234,182  Total long-term debt233,723  234,182  
Other liabilitiesOther liabilities153,167  139,458  Other liabilities164,542  139,458  
Total liabilitiesTotal liabilities7,457,181  7,253,108  Total liabilities8,288,950  7,253,108  
Shareholders’ EquityShareholders’ EquityShareholders’ Equity
Preferred stock, $1 par value per share, 3,000,000 shares authorized, none issuedPreferred stock, $1 par value per share, 3,000,000 shares authorized, none issued—  —  Preferred stock, $1 par value per share, 3,000,000 shares authorized, none issued—  —  
Common stock, $1 par value per share, 200,000,000 shares authorized; 113,914,902 shares issued at March 31, 2020 and December 31, 2019, and 98,015,396 and 98,311,840 shares outstanding at March 31, 2020 and December 31, 2019, respectively113,915  113,915  
Common stock, $1 par value per share, 200,000,000 shares authorized; 113,914,902 shares issued at June 30, 2020 and December 31, 2019, and 98,132,697 and 98,311,840 shares outstanding at June 30, 2020 and December 31, 2019, respectivelyCommon stock, $1 par value per share, 200,000,000 shares authorized; 113,914,902 shares issued at June 30, 2020 and December 31, 2019, and 98,132,697 and 98,311,840 shares outstanding at June 30, 2020 and December 31, 2019, respectively113,915  113,915  
Additional paid-in capitalAdditional paid-in capital494,181  493,737  Additional paid-in capital494,682  493,737  
Retained earningsRetained earnings571,256  577,348  Retained earnings584,312  577,348  
Accumulated other comprehensive income, netAccumulated other comprehensive income, net17,352  5,579  Accumulated other comprehensive income, net21,522  5,579  
Treasury stock (15,899,506 and 15,603,062 shares at March 31, 2020 and December 31, 2019, respectively)(138,780) (134,914) 
Treasury stock (15,782,205 and 15,603,062 shares at June 30, 2020 and December 31, 2019, respectively)Treasury stock (15,782,205 and 15,603,062 shares at June 30, 2020 and December 31, 2019, respectively)(138,726) (134,914) 
Total shareholders’ equityTotal shareholders’ equity1,057,924  1,055,665  Total shareholders’ equity1,075,705  1,055,665  
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$8,515,105  $8,308,773  Total liabilities and shareholders’ equity$9,364,655  $8,308,773  

The accompanying notes are an integral part of these unaudited consolidated financial statements.
3

Table of Contents


ITEM 1. Financial Statements and Supplementary Data (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For the Three Months EndedFor the Three Months EndedFor the Six Months Ended
March 31, June 30,June 30,
20202019 2020201920202019
(dollars in thousands, except share data)(dollars in thousands, except share data)
Interest IncomeInterest IncomeInterest Income
Interest and fees on loansInterest and fees on loans$71,740  $70,421  Interest and fees on loans$68,076  $73,389  $139,816  $143,810  
Interest and dividends on investments:Interest and dividends on investments:Interest and dividends on investments:
Taxable interestTaxable interest6,973  8,164  Taxable interest6,493  7,712  13,466  15,876  
Interest exempt from federal income taxesInterest exempt from federal income taxes315  418  Interest exempt from federal income taxes267  415  582  833  
DividendsDividends264  537  Dividends113  495  377  1,032  
Interest on bank depositsInterest on bank deposits37  54  Interest on bank deposits32  46  69  100  
Total interest incomeTotal interest income79,329  79,594  Total interest income74,981  82,057  154,310  161,651  
Interest ExpenseInterest ExpenseInterest Expense
Interest on depositsInterest on deposits8,449  8,175  Interest on deposits5,686  9,277  14,135  17,452  
Interest on short-term borrowingsInterest on short-term borrowings588  3,438  Interest on short-term borrowings47  3,017  635  6,455  
Interest on subordinated debenturesInterest on subordinated debentures2,146  2,354  Interest on subordinated debentures2,142  2,343  4,288  4,697  
Interest on other long-term debtInterest on other long-term debt355  71  Interest on other long-term debt354  224  709  295  
Interest on lease obligationsInterest on lease obligations67  70  Interest on lease obligations66  70  133  140  
Total interest expenseTotal interest expense11,605  14,108  Total interest expense8,295  14,931  19,900  29,039  
Net Interest IncomeNet Interest Income67,724  65,486  Net Interest Income66,686  67,126  134,410  132,612  
Provision for credit lossesProvision for credit losses30,967  4,095  Provision for credit losses6,859  2,835  37,826  6,930  
Net Interest Income after Provision for Credit LossesNet Interest Income after Provision for Credit Losses36,757  61,391  Net Interest Income after Provision for Credit Losses59,827  64,291  96,584  125,682  
Noninterest IncomeNoninterest IncomeNoninterest Income
Net securities gainsNet securities gains19  —  Net securities gains  27   
Trust incomeTrust income2,111  1,926  Trust income2,109  1,970  4,220  3,896  
Service charges on deposit accountsService charges on deposit accounts4,745  4,245  Service charges on deposit accounts3,286  4,593  8,031  8,838  
Insurance and retail brokerage commissionsInsurance and retail brokerage commissions1,995  1,961  Insurance and retail brokerage commissions1,831  2,014  3,826  3,975  
Income from bank owned life insuranceIncome from bank owned life insurance1,616  1,426  Income from bank owned life insurance1,800  1,442  3,416  2,868  
Gain on sale of mortgage loansGain on sale of mortgage loans2,546  1,428  Gain on sale of mortgage loans4,243  2,074  6,789  3,502  
Gain on sale of other loans and assetsGain on sale of other loans and assets699  1,084  Gain on sale of other loans and assets581  1,777  1,280  2,861  
Card-related interchange incomeCard-related interchange income5,262  4,730  Card-related interchange income5,886  5,441  11,148  10,171  
Derivatives mark to marketDerivatives mark to market(1,741) (26) Derivatives mark to market(221) (17) (1,962) (43) 
Swap fee incomeSwap fee income214  393  Swap fee income609  820  823  1,213  
Other incomeOther income1,807  1,705  Other income1,680  1,786  3,487  3,491  
Total noninterest incomeTotal noninterest income19,273  18,872  Total noninterest income21,812  21,906  41,085  40,778  
Noninterest ExpenseNoninterest ExpenseNoninterest Expense
Salaries and employee benefitsSalaries and employee benefits29,977  27,220  Salaries and employee benefits28,773  27,311  58,750  54,531  
Net occupancyNet occupancy4,973  4,916  Net occupancy4,397  4,441  9,370  9,357  
Furniture and equipmentFurniture and equipment3,778  3,668  Furniture and equipment3,657  3,824  7,435  7,492  
Data processingData processing2,467  2,544  Data processing2,596  2,619  5,063  5,163  
Advertising and promotionAdvertising and promotion1,150  1,240  Advertising and promotion1,535  1,231  2,685  2,471  
Pennsylvania shares taxPennsylvania shares tax738  916  Pennsylvania shares tax1,254  1,260  1,992  2,176  
Intangible amortizationIntangible amortization934  754  Intangible amortization919  745  1,853  1,499  
Collection and repossessionCollection and repossession564  547  Collection and repossession341  460  905  1,007  
Other professional fees and servicesOther professional fees and services910  754  Other professional fees and services920  1,032  1,818  1,786  
FDIC insuranceFDIC insurance28  574  FDIC insurance733  555  761  1,129  
Loss on sale or write-down of assetsLoss on sale or write-down of assets213  65  Loss on sale or write-down of assets140  1,181  353  1,246  
Litigation and operational lossesLitigation and operational losses390  401  Litigation and operational losses319  555  709  956  
Unfunded commitment reserveUnfunded commitment reserve(2,539) (381) Unfunded commitment reserve887  612  (1,652) 231  
COVID-19 relatedCOVID-19 related419  —  442  —  
Other operatingOther operating6,688  6,512  Other operating5,866  6,403  12,543  12,915  
Total noninterest expenseTotal noninterest expense50,271  49,730  Total noninterest expense52,756  52,229  103,027  101,959  
Income Before Income TaxesIncome Before Income Taxes5,759  30,533  Income Before Income Taxes28,883  33,968  34,642  64,501  
Income tax provisionIncome tax provision1,032  5,944  Income tax provision5,032  6,688  6,064  12,632  
Net IncomeNet Income$4,727  $24,589  Net Income$23,851  $27,280  $28,578  $51,869  
Average Shares OutstandingAverage Shares Outstanding98,123,627  98,479,041  Average Shares Outstanding97,932,333  98,346,674  98,027,980  98,412,492  
Average Shares Outstanding Assuming DilutionAverage Shares Outstanding Assuming Dilution98,361,494  98,706,827  Average Shares Outstanding Assuming Dilution98,146,854  98,600,609  98,254,429  98,651,810  
Per Share Data:Per Share Data:Per Share Data:
Basic Earnings per ShareBasic Earnings per Share$0.05  $0.25  Basic Earnings per Share$0.24  $0.28  $0.29  $0.53  
Diluted Earnings per ShareDiluted Earnings per Share$0.05  $0.25  Diluted Earnings per Share$0.24  $0.28  $0.29  $0.53  
Cash Dividends Declared per Common ShareCash Dividends Declared per Common Share$0.11  $0.10  Cash Dividends Declared per Common Share$0.11  $0.10  $0.22  $0.20  

The accompanying notes are an integral part of these unaudited consolidated financial statements.
4

Table of Contents


ITEM 1. Financial Statements and Supplementary Data (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
For the Three Months EndedFor the Three Months EndedFor the Six Months Ended
March 31, June 30,June 30,
20202019 2020201920202019
(dollars in thousands) (dollars in thousands)
Net IncomeNet Income$4,727  $24,589  Net Income$23,851  $27,280  $28,578  $51,869  
Other comprehensive income, before tax expense:Other comprehensive income, before tax expense:Other comprehensive income, before tax expense:
Unrealized holding gains on securities arising during the periodUnrealized holding gains on securities arising during the period19,503  9,030  Unrealized holding gains on securities arising during the period5,822  9,873  25,325  18,903  
Less: reclassification adjustment for gains on securities included in net incomeLess: reclassification adjustment for gains on securities included in net income(19) —  Less: reclassification adjustment for gains on securities included in net income(8) (6) (27) (6) 
Unrealized holding (losses) gains on derivatives arising during the periodUnrealized holding (losses) gains on derivatives arising during the period(4,581) 133  Unrealized holding (losses) gains on derivatives arising during the period(536) —  (5,117) 133  
Total other comprehensive income, before tax expenseTotal other comprehensive income, before tax expense14,903  9,163  Total other comprehensive income, before tax expense5,278  9,867  20,181  19,030  
Income tax expense related to items of other comprehensive incomeIncome tax expense related to items of other comprehensive income(3,130) (1,924) Income tax expense related to items of other comprehensive income(1,108) (2,072) (4,238) (3,996) 
Total other comprehensive incomeTotal other comprehensive income11,773  7,239  Total other comprehensive income4,170  7,795  15,943  15,034  
Comprehensive IncomeComprehensive Income$16,500  $31,828�� Comprehensive Income$28,021  $35,075  $44,521  $66,903  

The accompanying notes are an integral part of these unaudited consolidated financial statements.
5

Table of Contents


ITEM 1. Financial Statements and Supplementary Data (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Shares
Outstanding
Common
Stock
Additional
Paid-in-
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss),
net
Treasury
Stock
Total
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 share and per share data) (dollars in thousands, except share and per share data)
Balance at December 31, 2019Balance at December 31, 201998,311,840  $113,915  $493,737  $577,348  $5,579  $(134,914) $1,055,665  Balance at December 31, 201998,311,840  $113,915  $493,737  $577,348  $5,579  $(134,914) $1,055,665  
Net incomeNet income4,727  4,727  Net income28,578  28,578  
Other comprehensive incomeOther comprehensive income11,773  11,773  Other comprehensive income15,943  15,943  
Cash dividends declared ($0.11 per share)(10,819) (10,819) 
Cash dividends declared ($0.22 per share)Cash dividends declared ($0.22 per share)(21,614) (21,614) 
Treasury stock acquiredTreasury stock acquired(430,896) (5,220) (5,220) Treasury stock acquired(430,896) (5,220) (5,220) 
Treasury stock reissuedTreasury stock reissued134,452  444  —  1,150  1,594  Treasury stock reissued158,453  458  —  1,358  1,816  
Restricted stockRestricted stock—  —  —  —  204  204  Restricted stock93,300  —  487  —  50  537  
Balance at March 31, 202098,015,396  $113,915  $494,181  $571,256  $17,352  $(138,780) $1,057,924  
Balance at June 30, 2020Balance at June 30, 202098,132,697  $113,915  $494,682  $584,312  $21,522  $(138,726) $1,075,705  

Shares
Outstanding
Common
Stock
Additional
Paid-in-
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss),
net
Treasury
Stock
Total
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 share and per share data) (dollars in thousands, except share and per share data)
Balance at December 31, 2018Balance at December 31, 201898,518,668  $113,915  $492,273  $511,409  $(11,341) $(130,867) $975,389  Balance at December 31, 201898,518,668  $113,915  $492,273  $511,409  $(11,341) $(130,867) $975,389  
Net incomeNet income24,589  24,589  Net income51,869  51,869  
Other comprehensive incomeOther comprehensive income7,239  7,239  Other comprehensive income15,034  15,034  
Cash dividends declared ($0.10 per share)(9,862) (9,862) 
Cash dividends declared ($0.20 per share)Cash dividends declared ($0.20 per share)(19,712) (19,712) 
Treasury stock acquiredTreasury stock acquired(159,562) (2,074) (2,074) Treasury stock acquired(301,752) (3,960) (3,960) 
Treasury stock reissuedTreasury stock reissued188,700  941  —  1,590  2,531  Treasury stock reissued205,021  1,014  —  1,729  2,743  
Restricted stockRestricted stock78,000  —  450  —  (243) 207  Restricted stock78,000  —  450  —  18  468  
Balance at March 31, 201998,625,806  $113,915  $493,664  $526,136  $(4,102) $(131,594) $998,019  
Balance at June 30, 2019Balance at June 30, 201998,499,937  $113,915  $493,737  $543,566  $3,693  $(133,080) $1,021,831  

The accompanying notes are an integral part of these unaudited consolidated financial statements.
6

Table of Contents


ITEM 1. Financial Statements and Supplementary Data (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

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 share and per share data)
Balance at March 31, 202098,015,396  $113,915  $494,181  $571,256  $17,352  $(138,780) $1,057,924  
Net income23,851  23,851  
Other comprehensive income4,170  4,170  
Cash dividends declared ($0.11 per share)(10,795) (10,795) 
Treasury stock acquired—  —  —  
Treasury stock reissued24,001  14  —  208  222  
Restricted stock93,300  —  487  —  (154) 333  
Common stock issued—  —  —  —  
Balance at June 30, 202098,132,697  $113,915  $494,682  $584,312  $21,522  $(138,726) $1,075,705  

 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 share and per share data)
Balance at March 31, 201998,625,806  $113,915  $493,664  $526,136  $(4,102) $(131,594) $998,019  
Net income27,280  27,280  
Other comprehensive income7,795  7,795  
Cash dividends declared ($0.10 per share)(9,850) (9,850) 
Treasury stock acquired(142,190) —  (1,886) (1,886) 
Treasury stock reissued16,321  73  —  139  212  
Restricted stock—  —  —  —  261  261  
Common stock issuance—  —  —  —  —  
Balance at June 30, 201998,499,937  $113,915  $493,737  $543,566  $3,693  $(133,080) $1,021,831  


The accompanying notes are an integral part of these unaudited consolidated financial statements.
67

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ITEM 1. Financial Statements and Supplementary Data (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months EndedFor the Six Months Ended
March 31, June 30,
20202019 20202019
Operating ActivitiesOperating Activities(dollars in thousands)Operating Activities(dollars in thousands)
Net incomeNet income$4,727  $24,589  Net income$28,578  $51,869  
Adjustment to reconcile net income to net cash provided by operating activities:Adjustment to reconcile net income to net cash provided by operating activities:Adjustment to reconcile net income to net cash provided by operating activities:
Provision for credit lossesProvision for credit losses30,967  4,095  Provision for credit losses37,826  6,930  
Deferred tax (benefit) expenseDeferred tax (benefit) expense(3,551) 1,443  Deferred tax (benefit) expense(3,387) 1,112  
Depreciation and amortizationDepreciation and amortization2,926  2,478  Depreciation and amortization5,549  5,087  
Net gains on securities and other assetsNet gains on securities and other assets(1,645) (2,218) Net gains on securities and other assets(5,896) (5,288) 
Net amortization of premiums and discounts on securitiesNet amortization of premiums and discounts on securities1,310  784  Net amortization of premiums and discounts on securities2,993  1,704  
Income from increase in cash surrender value of bank owned life insuranceIncome from increase in cash surrender value of bank owned life insurance(1,610) (1,426) Income from increase in cash surrender value of bank owned life insurance(3,149) (2,868) 
Increase in interest receivableIncrease in interest receivable(761) (2,346) Increase in interest receivable(10,218) (1,963) 
Mortgage loans originated for saleMortgage loans originated for sale(65,236) (34,985) Mortgage loans originated for sale(155,916) (98,292) 
Proceeds from sale of mortgage loansProceeds from sale of mortgage loans61,777  35,255  Proceeds from sale of mortgage loans150,821  95,549  
Increase in interest payable1,122  1,522  
(Decrease) increase in interest payable(Decrease) increase in interest payable(484) 270  
Increase in income taxes payableIncrease in income taxes payable4,528  4,454  Increase in income taxes payable9,349  1,319  
Other-netOther-net(1,438) (14,956) Other-net(4,875) (25,316) 
Net cash provided by operating activitiesNet cash provided by operating activities33,116  18,689  Net cash provided by operating activities51,191  30,113  
Investing ActivitiesInvesting ActivitiesInvesting Activities
Transactions with securities held to maturity:Transactions with securities held to maturity:Transactions with securities held to maturity:
Proceeds from maturities and redemptionsProceeds from maturities and redemptions18,504  8,641  Proceeds from maturities and redemptions42,175  19,977  
PurchasesPurchases(200) (200) 
Transactions with securities available for sale:Transactions with securities available for sale:Transactions with securities available for sale:
Proceeds from maturities and redemptionsProceeds from maturities and redemptions50,107  31,099  Proceeds from maturities and redemptions125,162  77,571  
PurchasesPurchases(127,368) (6,401) Purchases(127,368) (16,401) 
Purchases of FHLB stockPurchases of FHLB stock(18,682) (10,293) Purchases of FHLB stock(20,927) (23,256) 
Proceeds from the redemption of FHLB stockProceeds from the redemption of FHLB stock16,028  17,041  Proceeds from the redemption of FHLB stock25,416  25,814  
Proceeds from bank owned life insuranceProceeds from bank owned life insurance557  —  Proceeds from bank owned life insurance201  —  
Proceeds from sale of loansProceeds from sale of loans7,960  8,559  Proceeds from sale of loans10,335  22,312  
Proceeds from sale of other assetsProceeds from sale of other assets1,361  1,144  Proceeds from sale of other assets3,173  3,539  
Net increase in loansNet increase in loans(140,013) (104,189) Net increase in loans(752,191) (250,773) 
Purchases of premises and equipment and other assetsPurchases of premises and equipment and other assets(3,654) (4,128) Purchases of premises and equipment and other assets(5,363) (8,843) 
Net cash used in investing activitiesNet cash used in investing activities(195,200) (58,527) Net cash used in investing activities(699,587) (150,260) 
Financing ActivitiesFinancing ActivitiesFinancing Activities
Net increase (decrease) in federal funds purchased27,000  (11,000) 
Net decrease in federal funds purchasedNet decrease in federal funds purchased—  (11,000) 
Net decrease in other short-term borrowingsNet decrease in other short-term borrowings(81,882) (145,207) Net decrease in other short-term borrowings(93,369) (155,743) 
Net increase in depositsNet increase in deposits245,591  232,892  Net increase in deposits1,104,794  258,198  
Repayments of other long-term debtRepayments of other long-term debt(162) (156) Repayments of other long-term debt(327) (315) 
Repayments of capital lease obligationRepayments of capital lease obligation(105) (99) Repayments of capital lease obligation(213) (199) 
Proceeds from issuance of other long-term debtProceeds from issuance of other long-term debt—  50,000  
Dividends paidDividends paid(10,819) (9,862) Dividends paid(21,614) (19,712) 
Proceeds from reissuance of treasury stockProceeds from reissuance of treasury stock222  211  
Purchase of treasury stockPurchase of treasury stock(5,220) (1,785) Purchase of treasury stock(5,220) (3,960) 
Net cash provided by financing activitiesNet cash provided by financing activities174,403  64,783  Net cash provided by financing activities984,273  117,480  
Net increase in cash and cash equivalents12,319  24,945  
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents335,877  (2,667) 
Cash and cash equivalents at January 1Cash and cash equivalents at January 1121,856  98,947  Cash and cash equivalents at January 1121,856  98,947  
Cash and cash equivalents at March 31$134,175  $123,892  
Cash and cash equivalents at June 30Cash and cash equivalents at June 30$457,733  $96,280  

The accompanying notes are an integral part of these unaudited consolidated financial statements.
78


ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation
The accounting and reporting policies of First Commonwealth Financial Corporation and its subsidiaries (“First Commonwealth” or the “Company”) conform with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. Actual realized amounts could differ from those estimates. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of First Commonwealth’s financial position, results of operations, comprehensive income, cash flows and changes in shareholders’ equity as of and for the periods presented. Certain information and Note disclosures normally included in Consolidated Financial Statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC.
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and interest-bearing bank deposits. Generally, federal funds are sold for one-day periods.
The results of operations for the threesix months ended March 31,June 30, 2020 are not necessarily indicative of the results that may be expected for the full year of 2020. These interim financial statements should be read in conjunction with First Commonwealth’s 2019 Annual Report on Form 10-K.

Note 2 Supplemental Comprehensive Income Disclosures
The following table identifies the related tax effects allocated to each component of other comprehensive income (“OCI”) in the unaudited Consolidated Statements of Comprehensive Income. Reclassification adjustments related to securities available for sale are included in the "Net securities gains" line and reclassification adjustments related to losses on derivatives are included in the "Other operating" line in the unaudited Consolidated Statements of Income.
For the Three Months Ended March 31,For the Six Months Ended June 30,
2020201920202019
Pretax AmountTax (Expense) BenefitNet of Tax AmountPretax AmountTax (Expense) BenefitNet of Tax AmountPretax AmountTax (Expense) BenefitNet of Tax AmountPretax AmountTax (Expense) BenefitNet of Tax Amount
(dollars in thousands)(dollars in thousands)
Unrealized gains on securities:Unrealized gains on securities:Unrealized gains on securities:
Unrealized holding gains on securities arising during the periodUnrealized holding gains on securities arising during the period$19,503  $(4,096) $15,407  $9,030  $(1,896) $7,134  Unrealized holding gains on securities arising during the period$25,325  $(5,319) $20,006�� $18,903  $(3,969) $14,934  
Reclassification adjustment for gains on securities included in net incomeReclassification adjustment for gains on securities included in net income(19)  (15) —  —  —  Reclassification adjustment for gains on securities included in net income(27)  (21) (6)  (5) 
Total unrealized gains on securitiesTotal unrealized gains on securities19,484  (4,092) 15,392  9,030  (1,896) 7,134  Total unrealized gains on securities25,298  (5,313) 19,985  18,897  (3,968) 14,929  
Unrealized (losses) gains on derivatives:Unrealized (losses) gains on derivatives:Unrealized (losses) gains on derivatives:
Unrealized holding (losses) gains on derivatives arising during the periodUnrealized holding (losses) gains on derivatives arising during the period(4,581) 962  (3,619) 133  (28) 105  Unrealized holding (losses) gains on derivatives arising during the period(5,117) 1,075  (4,042) 133  (28) 105  
Reclassification adjustment for losses on derivatives included in net incomeReclassification adjustment for losses on derivatives included in net income—  —  —  —  —  —  Reclassification adjustment for losses on derivatives included in net income—  —  —  —  —  —  
Total unrealized (losses) gains on derivativesTotal unrealized (losses) gains on derivatives(4,581) 962  (3,619) 133  (28) 105  Total unrealized (losses) gains on derivatives(5,117) 1,075  (4,042) 133  (28) 105  
Total other comprehensive incomeTotal other comprehensive income$14,903  $(3,130) $11,773  $9,163  $(1,924) $7,239  Total other comprehensive income$20,181  $(4,238) $15,943  $19,030  $(3,996) $15,034  

89

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Three Months Ended June 30,
20202019
Pretax AmountTax (Expense) BenefitNet of Tax AmountPretax AmountTax (Expense) BenefitNet of Tax Amount
(dollars in thousands)
Unrealized gains on securities:
Unrealized holding gains on securities arising during the period$5,822  $(1,223) $4,599  $9,873  $(2,073) $7,800  
Reclassification adjustment for gains on securities included in net income(8)  (6) (6)  (5) 
Total unrealized gains on securities5,814  (1,221) 4,593  9,867  (2,072) 7,795  
Unrealized losses on derivatives:
Unrealized holding losses on derivatives arising during the period(536) 113  (423) —  —  —  
Reclassification adjustment for losses on derivatives included in net income—  —  —  —  —  —  
Total unrealized losses on derivatives(536) 113  (423) —  —  —  
Total other comprehensive income$5,278  $(1,108) $4,170  $9,867  $(2,072) $7,795  

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

20202019
 Securities Available for SalePost-Retirement ObligationDerivativesAccumulated Other Comprehensive Income (Loss)Securities Available for SalePost-Retirement ObligationDerivativesAccumulated Other Comprehensive Income (Loss)
 (dollars in thousands)
Balance at December 31$4,580  $365  $634  $5,579  $(11,697) $461  $(105) $(11,341) 
Other comprehensive income before reclassification adjustment20,006  —  (4,042) 15,964  14,934  —  105  15,039  
Amounts reclassified from accumulated other comprehensive (loss) income(21) —  —  (21) (5) —  —  (5) 
Net other comprehensive income during the period19,985  —  (4,042) 15,943  14,929  —  105  15,034  
Balance at June 30$24,565  $365  $(3,408) $21,522  $3,232  $461  $—  $3,693  

The following table details the change in components of OCI for the three months ended March 31:June 30:
20202019
 Securities Available for SalePost-Retirement ObligationDerivativesAccumulated Other Comprehensive Income (Loss)Securities Available for SalePost-Retirement ObligationDerivativesAccumulated Other Comprehensive Income (Loss)
 (dollars in thousands)
Balance at December 31$4,580  $365  $634  $5,579  $(11,697) $461  $(105) $(11,341) 
Other comprehensive income before reclassification adjustment15,407  —  (3,619) 11,788  7,134  —  105  7,239  
Amounts reclassified from accumulated other comprehensive (loss) income(15) —  —  (15) —  —  —  —  
Net other comprehensive income during the period15,392  —  (3,619) 11,773  7,134  —  105  7,239  
Balance at March 31$19,972  $365  $(2,985) $17,352  $(4,563) $461  $—  $(4,102) 
g
20202019
 Securities Available for SalePost-Retirement ObligationDerivativesAccumulated Other Comprehensive Income (Loss)Securities Available for SalePost-Retirement ObligationDerivativesAccumulated Other Comprehensive Income (Loss)
 (dollars in thousands)
Balance at March 31$19,972  $365  $(2,985) $17,352  $(4,563) $461  $—  $(4,102) 
Other comprehensive income before reclassification adjustment4,599  —  (423) 4,176  7,800  —  —  7,800  
Amounts reclassified from accumulated other comprehensive (loss) income(6) —  —  (6) (5) —  —  (5) 
Net other comprehensive income during the period4,593  —  (423) 4,170  7,795  —  —  7,795  
Balance at June 30$24,565  $365  $(3,408) $21,522  $3,232  $461  $—  $3,693  

10

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3 Supplemental Cash Flow Disclosures
The following table presents information related to cash paid during the period for interest and income taxes, as well as detail on non-cash investing and financing activities for the threesix months ended March 31:June 30:
2020201920202019
(dollars in thousands)(dollars in thousands)
Cash paid during the period for:Cash paid during the period for:Cash paid during the period for:
InterestInterest$10,551  $12,660  Interest$20,493  $28,895  
Income taxesIncome taxes80  61  Income taxes130  10,241  
Non-cash investing and financing activities:Non-cash investing and financing activities:Non-cash investing and financing activities:
Loans transferred to other real estate owned and repossessed assetsLoans transferred to other real estate owned and repossessed assets1,961  982  Loans transferred to other real estate owned and repossessed assets2,368  1,776  
Loans transferred from held to maturity to held for saleLoans transferred from held to maturity to held for sale10,858  4,156  Loans transferred from held to maturity to held for sale13,442  16,823  
Loans transferred from available for sale to held to maturityLoans transferred from available for sale to held to maturity385  —  Loans transferred from available for sale to held to maturity1,908  —  
Gross increase in market value adjustment to securities available for saleGross increase in market value adjustment to securities available for sale19,484  9,030  Gross increase in market value adjustment to securities available for sale25,298  18,897  
Gross (decrease) increase in market value adjustment to derivativesGross (decrease) increase in market value adjustment to derivatives(4,581) 133  Gross (decrease) increase in market value adjustment to derivatives(5,117) 133  
Investments committed to purchase, not settledInvestments committed to purchase, not settled21,853  —  
Noncash treasury stock reissuanceNoncash treasury stock reissuance1,594  2,531  Noncash treasury stock reissuance1,594  2,531  
Unsettled treasury stock repurchases—  289  
Proceeds from death benefit on bank owned life insurance not receivedProceeds from death benefit on bank owned life insurance not received(356) —  Proceeds from death benefit on bank owned life insurance not received557  —  

9

Note 4 Earnings per Share
The following table summarizes the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computations:
For the Three Months Ended June 30,For the Six Months Ended June 30,
2020201920202019
Weighted average common shares issued113,914,902  113,914,902  113,914,902  113,914,902  
Average treasury stock shares(15,788,359) (15,398,192) (15,730,604) (15,345,018) 
Average deferred compensation shares(41,426) (37,411) (39,939) (37,411) 
Average unearned nonvested shares(152,784) (132,625) (116,379) (119,981) 
Weighted average common shares and common stock equivalents used to calculate basic earnings per share97,932,333  98,346,674  98,027,980  98,412,492  
Additional common stock equivalents (nonvested stock) used to calculate diluted earnings per share173,095  216,524  185,023  201,907  
Additional common stock equivalents (deferred compensation) used to calculate diluted earnings per share41,426  37,411  41,426  37,411  
Weighted average common shares and common stock equivalents used to calculate diluted earnings per share98,146,854  98,600,609  98,254,429  98,651,810  
Basic Earnings per Share$0.24  $0.28  $0.29  $0.53  
Diluted Earnings per Share$0.24  $0.28  $0.29  $0.53  
The following table shows the number of shares and the price per share related to common stock equivalents that were not included in the computation of diluted earnings per share for the six months ended June 30 because to do so would have been antidilutive.
20202019
Price RangePrice Range
SharesFromToSharesFromTo
Restricted Stock122,066  $13.72  $15.44  106,631  $10.02  $14.49  
Restricted Stock Units91,240  $12.43  $15.37  21,888  $16.62  $16.62  

11

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4 Earnings per Share
The following table summarizes the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computations:
For the Three Months Ended March 31,
20202019
Weighted average common shares issued113,914,902  113,914,902  
Average treasury stock shares(15,672,850) (15,291,253) 
Average deferred compensation shares(38,453) (37,411) 
Average unearned nonvested shares(79,972) (107,197) 
Weighted average common shares and common stock equivalents used to calculate basic earnings per share98,123,627  98,479,041  
Additional common stock equivalents (nonvested stock) used to calculate diluted earnings per share196,441  190,375  
Additional common stock equivalents (deferred compensation) used to calculate diluted earnings per share41,426  37,411  
Weighted average common shares and common stock equivalents used to calculate diluted earnings per share98,361,494  98,706,827  
Basic Earnings per Share$0.05  $0.25  
Diluted Earnings per Share$0.05  $0.25  
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 three months ended March 31 because to do so would have been antidilutive.
20202019
Price RangePrice Range
SharesFromToSharesFromTo
Restricted Stock75,208  $13.82  $15.44  95,403  $12.99  $14.49  
Restricted Stock Units42,509  $13.72  $15.37  39,618  $14.22  $16.62  

Note 5 Commitments and Contingent Liabilities
Commitments and Letters of Credit
Standby letters of credit and commercial letters of credit are conditional commitments issued by First Commonwealth to guarantee the performance of a customer to a third party. The contract or notional amount of these instruments reflects the maximum amount of future payments that First Commonwealth could be required to pay under the guarantees if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from collateral held or pledged. In addition, many of these commitments are expected to expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements.
The following table identifies the notional amount of those instruments at:
March 31, 2020December 31, 2019June 30, 2020December 31, 2019
(dollars in thousands) (dollars in thousands)
Financial instruments whose contract amounts represent credit risk:Financial instruments whose contract amounts represent credit risk:Financial instruments whose contract amounts represent credit risk:
Commitments to extend creditCommitments to extend credit$1,988,601  $1,981,275  Commitments to extend credit$2,095,055  $1,981,275  
Financial standby letters of creditFinancial standby letters of credit17,325  16,630  Financial standby letters of credit16,596  16,630  
Performance standby letters of creditPerformance standby letters of credit20,074  23,293  Performance standby letters of credit19,975  23,293  
Commercial letters of creditCommercial letters of credit782  783  Commercial letters of credit782  783  
 
The notional amounts outstanding as of March 31,June 30, 2020 include amounts issued in 2020 of $19$81 thousand in performance standby letters of credit and $52 thousand in financial standby letters of credit. There were 0 commercial letters of credit issued in 2020. A liability of $0.2 million and $0.1 million has been recorded as of March 31,both June 30, 2020 and December 31, 2019, which represents the estimated fair value of letters of credit issued. The fair value of letters of credit is estimated based on the unrecognized portion of fees received at the time the commitment was issued.
Unused commitments and letters of credit provide exposure to future credit loss in the event of nonperformance by the borrower or guaranteed parties. Management’s evaluation of the credit risk related to these commitments resulted in the recording of a liability of $2.9 million and $4.5 million as of June 30, 2020 and December 31, 2019, respectively. This liability is reflected in "Other liabilities" in the unaudited Consolidated Statements of Financial Condition. The credit risk evaluation incorporated probability of default, loss given default and estimated utilization for the next twelve months for each loan category and the letters of credit.
Legal Proceedings
First Commonwealth and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted. As of June 30, 2020, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against First Commonwealth or its subsidiaries will be material to First Commonwealth’s consolidated financial position. On at least a quarterly basis, First Commonwealth assesses its liabilities and contingencies in connection with such legal proceedings. For those matters where it is probable that First Commonwealth will incur losses and the amounts of the losses can be reasonably estimated, First Commonwealth records an expense and corresponding liability in its consolidated financial statements. To the 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.
1012

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

respectively, which represents the estimated fair value of letters of credit issued. The fair value of letters of credit is estimated based on the unrecognized portion of fees received at the time the commitment was issued.
Unused commitments and letters of credit provide exposure to future credit loss in the event of nonperformance by the borrower or guaranteed parties. Management’s evaluation of the credit risk related to these commitments resulted in the recording of a liability of $2.0 million and $4.5 million as of March 31, 2020 and December 31, 2019, respectively. This liability is reflected in "Other liabilities" in the unaudited Consolidated Statements of Financial Condition. The credit risk evaluation incorporated probability of default, loss given default and estimated utilization for the next twelve months for each loan category and the letters of credit.
Legal Proceedings
First Commonwealth and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted. As of March 31, 2020, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against First Commonwealth or its subsidiaries will be material to First Commonwealth’s consolidated financial position. On at least a quarterly basis, First Commonwealth assesses its liabilities and contingencies in connection with such legal proceedings. For those matters where it is probable that First Commonwealth will incur losses and the amounts of the losses can be reasonably estimated, First Commonwealth records an expense and corresponding liability in its consolidated financial statements. To the 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 6 Investment Securities
Securities Available for Sale
Below is an analysis of the amortized cost and estimated fair values of securities available for sale at:
March 31, 2020December 31, 2019 June 30, 2020December 31, 2019
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
(dollars in thousands) (dollars in thousands)
Obligations of U.S. Government Agencies:Obligations of U.S. Government Agencies:Obligations of U.S. Government Agencies:
Mortgage-Backed Securities – ResidentialMortgage-Backed Securities – Residential$7,395  $721  $—  $8,116  $7,745  $596  $—  $8,341  Mortgage-Backed Securities – Residential$7,199  $730  $—  $7,929  $7,745  $596  $—  $8,341  
Mortgage-Backed Securities – CommercialMortgage-Backed Securities – Commercial235,884  5,088  (215) 240,757  186,316  2,983  (166) 189,133  Mortgage-Backed Securities – Commercial225,662  9,932  —  235,594  186,316  2,983  (166) 189,133  
Obligations of U.S. Government-Sponsored Enterprises:Obligations of U.S. Government-Sponsored Enterprises:Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – ResidentialMortgage-Backed Securities – Residential670,251  18,973  —  689,224  660,777  4,113  (2,943) 661,947  Mortgage-Backed Securities – Residential605,469  18,704  (18) 624,155  660,777  4,113  (2,943) 661,947  
Other Government-Sponsored EnterprisesOther Government-Sponsored Enterprises1,000   —  1,004  1,000  —  —  1,000  Other Government-Sponsored Enterprises1,000   —  1,001  1,000  —  —  1,000  
Obligations of States and Political SubdivisionsObligations of States and Political Subdivisions9,891  136  —  10,027  17,738  171  —  17,909  Obligations of States and Political Subdivisions8,785  199  —  8,984  17,738  171  —  17,909  
Corporate SecuritiesCorporate Securities22,924  574  —  23,498  22,919  1,043  —  23,962  Corporate Securities22,930  1,547  —  24,477  22,919  1,043  —  23,962  
Total Securities Available for SaleTotal Securities Available for Sale$947,345  $25,496  $(215) $972,626  $896,495  $8,906  $(3,109) $902,292  Total Securities Available for Sale$871,045  $31,113  $(18) $902,140  $896,495  $8,906  $(3,109) $902,292  

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

Expected maturities will differ from contractual maturities because 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.
1113

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 March 31,June 30, 2020, by contractual maturity, are shown below.
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated
Fair Value
(dollars in thousands) (dollars in thousands)
Due within 1 yearDue within 1 year$5,597  $5,601  Due within 1 year$4,998  $5,070  
Due after 1 but within 5 yearsDue after 1 but within 5 years23,248  23,536  Due after 1 but within 5 years23,978  25,071  
Due after 5 but within 10 yearsDue after 5 but within 10 years4,970  5,392  Due after 5 but within 10 years3,739  4,321  
Due after 10 yearsDue after 10 years—  —  Due after 10 years—  —  
33,815  34,529  32,715  34,462  
Mortgage-Backed Securities (a)Mortgage-Backed Securities (a)913,530  938,097  Mortgage-Backed Securities (a)838,330  867,678  
Total Debt SecuritiesTotal Debt Securities$947,345  $972,626  Total Debt Securities$871,045  $902,140  
 
(a)Mortgage-backed and collateralized mortgage securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds. Mortgage-Backed Securities include an amortized cost of $243.3$232.9 million and a fair value of $248.9$243.5 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $670.3$605.4 million and a fair value of $689.2$624.2 million for Obligations of U.S. Government-sponsored enterprises issued by Fannie Mae and Freddie Mac.
 
Proceeds from sales, gross gains (losses) realized on sales, maturities and other-than-temporary impairment charges related to securities available for sale were as follows for the threesix months ended March 31:June 30:
2020201920202019
(dollars in thousands) (dollars in thousands)
Proceeds from salesProceeds from sales$—  $—  Proceeds from sales$—  $—  
Gross gains (losses) realized:Gross gains (losses) realized:Gross gains (losses) realized:
Sales transactions:Sales transactions:Sales transactions:
Gross gainsGross gains$—  $—  Gross gains$—  $—  
Gross lossesGross losses—  —  Gross losses—  —  
—  —  —  —  
MaturitiesMaturitiesMaturities
Gross gainsGross gains19  —  Gross gains27   
Gross lossesGross losses—  —  Gross losses—  —  
19  —  27   
Net gains and impairmentNet gains and impairment$19  $—  Net gains and impairment$27  $ 
Securities available for sale with an estimated fair value of $713.0$814.7 million and $584.8 million were pledged as of March 31,June 30, 2020 and December 31, 2019, respectively, to secure public deposits and for other purposes required or permitted by law.
1214

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Securities Held to Maturity
Below is an analysis of the amortized cost and fair values of debt securities held to maturity at:
March 31, 2020December 31, 2019 June 30, 2020December 31, 2019
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
(dollars in thousands) (dollars in thousands)
Obligations of U.S. Government Agencies:Obligations of U.S. Government Agencies:Obligations of U.S. Government Agencies:
Mortgage-Backed Securities – ResidentialMortgage-Backed Securities – Residential$3,298  $164  $—  $3,462  $3,392  $57  $—  $3,449  Mortgage-Backed Securities – Residential$3,008  $191  $—  $3,199  $3,392  $57  $—  $3,449  
Mortgage-Backed Securities- CommercialMortgage-Backed Securities- Commercial48,554  512  —  49,066  51,291  18  (184) 51,125  Mortgage-Backed Securities- Commercial46,803  1,646  —  48,449  51,291  18  (184) 51,125  
Obligations of U.S. Government-Sponsored Enterprises:Obligations of U.S. Government-Sponsored Enterprises:Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – ResidentialMortgage-Backed Securities – Residential216,547  7,712  —  224,259  229,667  1,377  (294) 230,750  Mortgage-Backed Securities – Residential197,342  6,974  —  204,316  229,667  1,377  (294) 230,750  
Mortgage-Backed Securities – CommercialMortgage-Backed Securities – Commercial11,793  417  —  12,210  12,081  67  —  12,148  Mortgage-Backed Securities – Commercial10,894  395  —  11,289  12,081  67  —  12,148  
Obligations of States and Political SubdivisionsObligations of States and Political Subdivisions37,464  531  —  37,995  40,092  554  —  40,646  Obligations of States and Political Subdivisions39,139  682  —  39,821  40,092  554  —  40,646  
Debt Securities Issued by Foreign GovernmentsDebt Securities Issued by Foreign Governments600  —  —  600  600  —  —  600  Debt Securities Issued by Foreign Governments800  —  —  800  600  —  —  600  
Total Securities Held to MaturityTotal Securities Held to Maturity$318,256  $9,336  $—  $327,592  $337,123  $2,073  $(478) $338,718  Total Securities Held to Maturity$297,986  $9,888  $—  $307,874  $337,123  $2,073  $(478) $338,718  
The amortized cost and estimated fair value of debt securities held to maturity at March 31,June 30, 2020, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated
Fair Value
(dollars in thousands) (dollars in thousands)
Due within 1 yearDue within 1 year$1,019  $1,023  Due within 1 year$1,012  $1,018  
Due after 1 but within 5 yearsDue after 1 but within 5 years10,428  10,533  Due after 1 but within 5 years14,227  14,404  
Due after 5 but within 10 yearsDue after 5 but within 10 years26,617  27,039  Due after 5 but within 10 years24,700  25,199  
Due after 10 yearsDue after 10 years—  —  Due after 10 years—  —  
38,064  38,595  39,939  40,621  
Mortgage-Backed Securities (a)Mortgage-Backed Securities (a)280,192  288,997  Mortgage-Backed Securities (a)258,047  267,253  
Total Debt SecuritiesTotal Debt Securities$318,256  $327,592  Total Debt Securities$297,986  $307,874  
(a)Mortgage-backed and collateralized mortgage securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds. Mortgage-Backed Securities include an amortized cost of $51.9$49.8 million and a fair value of $52.5$51.6 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $228.3$208.2 million and a fair value of $236.5$215.6 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 $290.5$286.9 million and $306.8 million were pledged as of March 31,June 30, 2020 and December 31, 2019, respectively, to secure public deposits and for other purposes required or permitted by law.
1315

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7 Impairment of Investment Securities
Securities Available for Sale and Held to Maturity
As required by FASB ASC Topic 320, “Investments – Debt and Equity Securities,” credit-related other-than-temporary impairment on debt securities is recognized in earnings, while non-credit related other-than-temporary impairment on debt securities not expected to be sold is recognized in OCI. During the threesix months ended March 31,June 30, 2020 and 2019, 0 other-than-temporary impairment charges were recognized.
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. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and whether we are more likely than not to sell, or be required 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, our cash flow needs, liquidity position, capital adequacy, tax position and interest rate risk position. In addition, the risk of future other-than-temporary impairment may be influenced by weakness in the U.S. economy or changes in real estate values.
The following table presents the gross unrealized losses and estimated fair values at March 31,June 30, 2020 for both available for sale and held to maturity securities by investment category and time frame for which securities have been in a continuous unrealized loss position:
 
Less Than 12 Months12 Months or MoreTotal Less Than 12 Months12 Months or MoreTotal
Estimated
Fair Value
Gross
Unrealized
Losses
Estimated
Fair Value
Gross
Unrealized
Losses
Estimated
Fair Value
Gross
Unrealized
Losses
Estimated
Fair Value
Gross
Unrealized
Losses
Estimated
Fair Value
Gross
Unrealized
Losses
Estimated
Fair Value
Gross
Unrealized
Losses
(dollars in thousands) (dollars in thousands)
Obligations of U.S. Government-Sponsored Enterprises:Obligations of U.S. Government-Sponsored Enterprises:Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – ResidentialMortgage-Backed Securities – Residential$11,333  $(18) $—  $—  $11,333  $(18) 
Mortgage-Backed Securities – Commercial$25,481  $(215) $—  $—  $25,481  $(215) 
Total SecuritiesTotal Securities$25,481  $(215) $—  $—  $25,481  $(215) Total Securities$11,333  $(18) $—  $—  $11,333  $(18) 
        
At March 31,June 30, 2020, fixed income securities issued by U.S. Government-sponsored enterprises comprised 100% of total unrealized losses due to changes in market interest rates. At March 31,June 30, 2020, there is 1are 2 debt securitysecurities in an unrealized loss position.
The following table presents the gross unrealized losses and estimated fair values at December 31, 2019 by investment category and time frame for which securities have been in a continuous unrealized loss position:
 Less Than 12 Months12 Months or MoreTotal
 Estimated
Fair Value
Gross
Unrealized
Losses
Estimated
Fair Value
Gross
Unrealized
Losses
Estimated
Fair Value
Gross
Unrealized
Losses
 (dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities - Commercial$54,501  $(201) $16,365  $(149) $70,866  $(350) 
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential111,969  (436) 219,015  (2,801) 330,984  (3,237) 
Total Securities$166,470  $(637) $235,380  $(2,950) $401,850  $(3,587) 
As of March 31,June 30, 2020, our corporate securities had an amortized cost and an estimated fair value of $22.9 million and $23.5$24.5 million, respectively. As of December 31, 2019, our corporate securities had an amortized cost and estimated fair value of $22.9 million and $24.0 million, respectively. Corporate securities are comprised of debt issued by large regional banks. There were 0 corporate securities in an unrealized loss position as of March 31,both June 30, 2020 and 4 corporate securities in an unrealized loss position as of December 31, 2019. When unrealized losses exist on these investments, management reviews each of the issuer’s asset quality, earnings trends and capital position to determine whether issues in an unrealized loss position were other-than-temporarily impaired. All interest payments on the corporate securities are being made as contractually required.
1416

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Investments
As a member of the Federal Home Loan Bank ("FHLB"), First Commonwealth is required to purchase and hold stock in the FHLB to satisfy membership and borrowing requirements. The level of stock required to be held is dependent on the amount of First Commonwealth's mortgage-related assets and outstanding borrowings with the FHLB. This stock is restricted in that it can only be sold to the FHLB or to another member institution, and all sales of FHLB stock must be at par. As a result of these 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 March 31,June 30, 2020 and December 31, 2019, our FHLB stock totaled $17.7$10.6 million and $15.1 million, respectively, and is included in “Other investments” on the unaudited Consolidated Statements of Financial Condition.
FHLB stock is held as a long-term investment and its value is determined based on the ultimate recoverability of the par value. First Commonwealth evaluates impairment quarterly and has concluded that the par value of its investment in FHLB stock will be recovered. Accordingly, no impairment charge was recorded on these securities during the three and six months ended March 31,June 30, 2020.
As of both March 31,June 30, 2020 and December 31, 2019, "Other investments" also includes $1.7 million in equity securities. These securities do not have a readily determinable fair value and are carried at cost. During the three-monthssix-months ended March 31,June 30, 2020 and 2019, there were 0 gains or losses recognized through earnings on equity securities. On a quarterly basis, management evaluates equity securities by reviewing the severity and duration of decline in estimated fair value, research reports, analysts’ recommendations, credit rating changes, news stories, annual reports, regulatory filings, impact of interest rate changes and other relevant information.
Note 8 Loans and Allowance for Credit Losses
The following table provides outstanding balances related to each of our loan types:
 
March 31, 2020December 31, 2019June 30, 2020December 31, 2019
OriginatedAcquiredTotalOriginatedAcquiredTotalOriginatedAcquiredTotalOriginatedAcquiredTotal
(dollars in thousands) (dollars in thousands)
Commercial, financial, agricultural and otherCommercial, financial, agricultural and other$1,242,909  $29,331  $1,272,240  $1,212,026  $29,827  $1,241,853  Commercial, financial, agricultural and other$1,746,495  $26,604  $1,773,099  $1,212,026  $29,827  $1,241,853  
Real estate constructionReal estate construction408,234  5,224  413,458  442,777  6,262  449,039  Real estate construction413,405  2,924  416,329  442,777  6,262  449,039  
Residential real estateResidential real estate1,439,306  251,834  1,691,140  1,415,808  265,554  1,681,362  Residential real estate1,494,925  228,363  1,723,288  1,415,808  265,554  1,681,362  
Commercial real estateCommercial real estate2,041,339  148,759  2,190,098  1,958,346  159,173  2,117,519  Commercial real estate2,089,658  135,052  2,224,710  1,958,346  159,173  2,117,519  
Loans to individualsLoans to individuals734,608  12,400  747,008  685,416  13,959  699,375  Loans to individuals773,467  11,182  784,649  685,416  13,959  699,375  
Total loansTotal loans$5,866,396  $447,548  $6,313,944  $5,714,373  $474,775  $6,189,148  Total loans$6,517,950  $404,125  $6,922,075  $5,714,373  $474,775  $6,189,148  
Credit Quality Information
As part of the on-going monitoring of credit quality within the loan portfolio, the following credit worthiness categories are used in grading our loans:
PassAcceptable levels of risk exist in the relationship. Includes all loans not classified as OAEM, substandard or doubtful.

Other Assets Especially Mentioned (OAEM)Potential weaknesses that deserve management’s close attention. The potential weaknesses may result in deterioration of the repayment prospects or weaken the Company’s credit position at some future date. The credit risk may be relatively minor, yet constitute an undesirable risk in light of the circumstances surrounding the specific credit. No loss of principal or interest is expected.

SubstandardWell-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.

1517

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Credit Quality Information
As part of the on-going monitoring of credit quality within the loan portfolio, the following credit worthiness categories are used in grading our loans:
PassAcceptable levels of risk exist in the relationship. Includes all loans not classified as OAEM, substandard or doubtful.

Other Assets Especially Mentioned (OAEM)Potential weaknesses that deserve management’s close attention. The potential weaknesses may result in deterioration of the repayment prospects or weaken the Company’s credit position at some future date. The credit risk may be relatively minor, yet constitute an undesirable risk in light of the circumstances surrounding the specific credit. No loss of principal or interest is expected.

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

Doubtful  Loans with the characteristics of substandard loans with the added characteristic that collection or liquidation in full, on the basis of presently existing facts and conditions, is highly improbable.
The use of creditworthiness categories to grade loans permits management’s use of migration analysis to estimate a portion of credit risk. The Company’s internal creditworthiness grading system provides a measurement of credit risk based primarily on an evaluation of the borrower’s cash flow and collateral. Movement between these rating categories provides a predictive measure of credit losses and therefore assists in determining the appropriate level for the loan loss reserves. 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. Loans that migrate towards higher risk rating levels generally have an increased risk of default, whereas loans that migrate toward lower risk ratings generally will result in a lower risk factor being applied to those related loan balances.
The following tables represent our credit risk profile by creditworthiness:
 June 30, 2020
 Commercial, financial, agricultural and otherReal estate constructionResidential real estateCommercial real estateLoans to individualsTotal
 (dollars in thousands)
Originated loans
Pass$1,686,601  $413,382  $1,487,535  $2,043,050  $773,234  $6,403,802  
Non-Pass
OAEM30,959  23  459  14,406  —  45,847  
Substandard28,935  —  6,931  32,202  233  68,301  
Doubtful—  —  —  —  —  —  
Total Non-Pass59,894  23  7,390  46,608  233  114,148  
Total$1,746,495  $413,405  $1,494,925  $2,089,658  $773,467  $6,517,950  
Acquired loans
Pass$24,743  $2,092  $226,353  $128,482  $11,171  $392,841  
Non-Pass
OAEM204  524  520  1,420  —  2,668  
Substandard1,657  308  1,490  5,150  11  8,616  
Doubtful—  —  —  —  —  —  
Total Non-Pass1,861  832  2,010  6,570  11  11,284  
Total$26,604  $2,924  $228,363  $135,052  $11,182  $404,125  
16
18

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables represent our credit risk profile by creditworthiness:
 March 31, 2020
 Commercial, financial, agricultural and otherReal estate constructionResidential real estateCommercial real estateLoans to individualsTotal
 (dollars in thousands)
Originated loans
Pass$1,183,879  $408,210  $1,431,760  $2,001,296  $734,333  $5,759,478  
Non-Pass
OAEM21,674  24  466  3,847   26,018  
Substandard37,356  —  7,080  36,196  268  80,900  
Doubtful—  —  —  —  —  —  
Total Non-Pass59,030  24  7,546  40,043  275  106,918  
Total$1,242,909  $408,234  $1,439,306  $2,041,339  $734,608  $5,866,396  
Acquired loans
Pass$27,330  $4,679  $249,022  $143,512  $12,388  $436,931  
Non-Pass
OAEM211  545  528  —  —  1,284  
Substandard1,790  —  2,284  5,247  12  9,333  
Doubtful—  —  —  —  —  —  
Total Non-Pass2,001  545  2,812  5,247  12  10,617  
Total$29,331  $5,224  $251,834  $148,759  $12,400  $447,548  
 December 31, 2019
 Commercial, financial, agricultural and otherReal estate constructionResidential real estateCommercial real estateLoans to individualsTotal
 (dollars in thousands)
Originated loans
Pass$1,171,363  $442,751  $1,406,845  $1,918,690  $685,108  $5,624,757  
Non-Pass
OAEM29,359  26  475  13,533  —  43,393  
Substandard11,304  —  8,488  26,123  308  46,223  
Doubtful—  —  —  —  —  —  
Total Non-Pass40,663  26  8,963  39,656  308  89,616  
Total$1,212,026  $442,777  $1,415,808  $1,958,346  $685,416  $5,714,373  
Acquired loans
Pass$27,696  $5,697  $262,630  $153,814  $13,947  $463,784  
Non-Pass
OAEM2,009  565  537  2,072  —  5,183  
Substandard122  —  2,387  3,287  12  5,808  
Doubtful—  —  —  —  —  —  
Total Non-Pass2,131  565  2,924  5,359  12  10,991  
Total$29,827  $6,262  $265,554  $159,173  $13,959  $474,775  
17

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Portfolio Risks
The credit quality of our loan portfolio can potentially represent significant risk to our earnings, capital and liquidity. First Commonwealth devotes substantial resources to managing this risk primarily through our credit administration department that develops and administers policies and procedures for underwriting, maintaining, monitoring and collecting loans. Credit administration is independent of lending departments and oversight is provided by the Credit Committee of the First Commonwealth Board of Directors.
Criticized loans have been evaluated when determining the appropriateness of the allowance for credit losses, which we believe is adequate to absorb losses inherent to the portfolio as of March 31,June 30, 2020. However, changes in economic conditions, interest rates, borrower financial condition, delinquency trends or previously established fair values of collateral factors could significantly change those judgmental estimates.
19

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Age Analysis of Past Due Loans by Segment
The following tables delineate the aging analysis of the recorded investments in past due loans as of March 31,June 30, 2020 and December 31, 2019. 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.
March 31, 2020 June 30, 2020
30 - 59
days
past due
60 - 89
days
past
due
90 days
or
greater
and still
accruing
NonaccrualTotal past
due and
nonaccrual
CurrentTotal 30 - 59
days
past due
60 - 89
days
past
due
90 days
or
greater
and still
accruing
NonaccrualTotal past
due and
nonaccrual
CurrentTotal
(dollars in thousands) (dollars in thousands)
Originated loansOriginated loansOriginated loans
Commercial, financial, agricultural and otherCommercial, financial, agricultural and other$417  $71  $28  $7,154  $7,670  $1,235,239  $1,242,909  Commercial, financial, agricultural and other$155  $48  $15  $8,423  $8,641  $1,737,854  $1,746,495  
Real estate constructionReal estate construction—  —  —  —  —  408,234  408,234  Real estate construction—  —  —  —  —  413,405  413,405  
Residential real estateResidential real estate3,350  1,036  506  6,160  11,052  1,428,254  1,439,306  Residential real estate2,028  695  562  6,046  9,331  1,485,594  1,494,925  
Commercial real estateCommercial real estate375  66  31  34,021  34,493  2,006,846  2,041,339  Commercial real estate220  69  —  30,097  30,386  2,059,272  2,089,658  
Loans to individualsLoans to individuals3,145  885  720  267  5,017  729,591  734,608  Loans to individuals1,371  492  632  232  2,727  770,740  773,467  
TotalTotal$7,287  $2,058  $1,285  $47,602  $58,232  $5,808,164  $5,866,396  Total$3,774  $1,304  $1,209  $44,798  $51,085  $6,466,865  $6,517,950  
Acquired loansAcquired loansAcquired loans
Commercial, financial, agricultural and otherCommercial, financial, agricultural and other$—  $—  $—  $74  $74  $29,257  $29,331  Commercial, financial, agricultural and other$264  $—  $—  $74  $338  $26,266  $26,604  
Real estate constructionReal estate construction—  —  —  —  —  5,224  5,224  Real estate construction—  —  —  308  308  2,616  2,924  
Residential real estateResidential real estate513  313  66  1,850  2,742  249,092  251,834  Residential real estate580  76  174  1,313  2,143  226,220  228,363  
Commercial real estateCommercial real estate434  —  49  2,093  2,576  146,183  148,759  Commercial real estate—  —  —  2,064  2,064  132,988  135,052  
Loans to individualsLoans to individuals73   27  12  117  12,283  12,400  Loans to individuals55  24  38  11  128  11,054  11,182  
TotalTotal$1,020  $318  $142  $4,029  $5,509  $442,039  $447,548  Total$899  $100  $212  $3,770  $4,981  $399,144  $404,125  
 
1820

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 December 31, 2019
 30 - 59
days
past due
60 - 89
days
past
due
90 days
or
greater
and still
accruing
NonaccrualTotal past
due and
nonaccrual
CurrentTotal
 (dollars in thousands)
Originated loans
Commercial, financial, agricultural and other$391  $57  $140  $8,780  $9,368  $1,202,658  $1,212,026  
Real estate construction198  —   —  207  442,570  442,777  
Residential real estate3,757  749  736  6,646  11,888  1,403,920  1,415,808  
Commercial real estate227  114  —  6,609  6,950  1,951,396  1,958,346  
Loans to individuals4,070  1,020  931  307  6,328  679,088  685,416  
Total$8,643  $1,940  $1,816  $22,342  $34,741  $5,679,632  $5,714,373  
Acquired loans
Commercial, financial, agricultural and other$ $—  $ $74  $76  $29,751  $29,827  
Real estate construction—  —  —  —  —  6,262  6,262  
Residential real estate304  207  221  1,949  2,681  262,873  265,554  
Commercial real estate—  107  —  298  405  158,768  159,173  
Loans to individuals87  89  35  12  223  13,736  13,959  
Total$392  $403  $257  $2,333  $3,385  $471,390  $474,775  
Nonaccrual Loans
The previous tables summarize nonaccrual loans by loan segment. The Company generally places loans on nonaccrual status when the full and timely collection of interest or principal becomes uncertain, when part of the principal balance has been charged off and no restructuring has occurred, or the loans reach a certain number of days past due. Generally, loans 90 days or more past due are placed on nonaccrual status, except for consumer loans, which are placed on nonaccrual status at 150 days past due.
When a loan is placed on nonaccrual, the accrued unpaid interest receivable is reversed against interest income and all future payments received are applied as a reduction to the loan principal. Generally, the loan is returned to accrual status when (a) all delinquent interest and principal becomes current under the terms of the loan agreement or (b) the loan is both well-secured and in the process of collection and collectability is no longer in doubt.
Impaired Loans
Management considers loans to be impaired 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. Determination of impairment is treated the same across all loan categories. When management identifies a loan as impaired, the impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole source for repayment of the loan is the operation or liquidation of collateral. When the loan is collateral dependent, the appraised value less estimated cost to sell is utilized. If management determines the value of the impaired loan is less than the recorded investment in the loan, impairment is recognized through an allowance estimate or a charge-off to the allowance. Troubled debt restructured loans on accrual status are also considered to be impaired loans.

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

In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 national emergency. These modifications typically provide for the deferral of both principal and interest for 90 days. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), along with a joint agency statement issued by banking regulators,
1921

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

provides that short-term modifications of up to 180 days made in response to COVID-19 do not need to be accounted for as a TDR. As of April 24, 2020,troubled debt restructured loans. Additionally, short-term loan modifications that are not accounted for as a troubled debt restructured loan, in accordance with the CARES Act, would remain classified as current during the deferral period and therefore are not reflected in the past due loan tables provided on the prior page. During the second quarter, the Company has granted approximately 6,000 deferrals6,500 short-term loan modifications to its customers with aggregate principal balances of $1.1$1.4 billion. Since most of these deferrals were for a 90-day period, as of June 30, 2020, the balance of loans in deferral status had fallen to $611.1 million. It is likely that some customers that are no longer in the deferral period will be granted an additional 90 day deferral in order to provide support for the continued impact of COVID-19. The decision to grant an additional 90 day forbearance will be more credit driven than the first deferral and will be based on a complete evaluation of the customers financial circumstances.
When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income when received under the cash basis method.
At March 31,June 30, 2020 and December 31, 2019, there were 0 impaired loans held for sale. During the threesix months ended, March 31,June 30, 2020 and 2019, there were 0 gains recognized on the sale of impaired loans. During the six months ended June 30,2019, there were $0.4 million in gains recognized on the sale of impaired loans.
The following tables include the recorded investment and unpaid principal balance for impaired loans with the associated allowance amount, if applicable, as of March 31,June 30, 2020 and December 31, 2019. Also presented are the average recorded investment in impaired loans and the related amount of interest recognized while the loan was considered impaired. Average balances are calculated using month-end balances of the loans for the period reported and are included in the table below based on their period-end allowance position.
March 31, 2020December 31, 2019 June 30, 2020December 31, 2019
Recorded
investment
Unpaid
principal
balance
Related
allowance
Recorded
investment
Unpaid
principal
balance
Related
allowance
Recorded
investment
Unpaid
principal
balance
Related
allowance
Recorded
investment
Unpaid
principal
balance
Related
allowance
(dollars in thousands) (dollars in thousands)
Originated loans:Originated loans:Originated loans:
With no related allowance recorded:With no related allowance recorded:With no related allowance recorded:
Commercial, financial, agricultural and otherCommercial, financial, agricultural and other$958  $1,143  $1,848  $6,997  Commercial, financial, agricultural and other$7,620  $10,557  $1,848  $6,997  
Real estate constructionReal estate construction—  —  —  —  Real estate construction—  —  —  —  
Residential real estateResidential real estate9,909  12,056  10,372  12,437  Residential real estate9,778  11,770  10,372  12,437  
Commercial real estateCommercial real estate4,447  4,965  3,015  3,210  Commercial real estate14,786  15,053  3,015  3,210  
Loans to individualsLoans to individuals473  840  406  640  Loans to individuals475  845  406  640  
SubtotalSubtotal15,787  19,004  15,641  23,284  Subtotal32,659  38,225  15,641  23,284  
With an allowance recorded:With an allowance recorded:With an allowance recorded:
Commercial, financial, agricultural and otherCommercial, financial, agricultural and other7,469  14,780  $2,727  8,290  10,032  $1,580  Commercial, financial, agricultural and other2,019  7,071  $958  8,290  10,032  $1,580  
Real estate constructionReal estate construction—  —  —  —  —  —  Real estate construction—  —  —  —  —  —  
Residential real estateResidential real estate255  358  —  474  498   Residential real estate254  358  —  474  498   
Commercial real estateCommercial real estate31,451  31,484  6,868  5,293  5,308  851  Commercial real estate17,136  17,154  5,590  5,293  5,308  851  
Loans to individualsLoans to individuals—  —  —  —  —  —  Loans to individuals—  —  —  —  —  —  
SubtotalSubtotal39,175  46,622  9,595  14,057  15,838  2,432  Subtotal19,409  24,583  6,548  14,057  15,838  2,432  
TotalTotal$54,962  $65,626  $9,595  $29,698  $39,122  $2,432  Total$52,068  $62,808  $6,548  $29,698  $39,122  $2,432  

2022

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2020December 31, 2019 June 30, 2020December 31, 2019
Recorded
investment
Unpaid
principal
balance
Related
allowance
Recorded
investment
Unpaid
principal
balance
Related
allowance
Recorded
investment
Unpaid
principal
balance
Related
allowance
Recorded
investment
Unpaid
principal
balance
Related
allowance
(dollars in thousands) (dollars in thousands)
Acquired loansAcquired loansAcquired loans
With no related allowance recorded:With no related allowance recorded:With no related allowance recorded:
Commercial, financial, agricultural and otherCommercial, financial, agricultural and other$74  $74  $73  $73  Commercial, financial, agricultural and other$74  $74  $73  $73  
Real estate constructionReal estate construction—  —  —  —  Real estate construction—  —  —  —  
Residential real estateResidential real estate2,000  2,468  2,136  2,585  Residential real estate1,499  1,875  2,136  2,585  
Commercial real estateCommercial real estate245  261  298  320  Commercial real estate245  260  298  320  
Loans to individualsLoans to individuals12  15  12  15  Loans to individuals11  14  12  15  
SubtotalSubtotal2,331  2,818  2,519  2,993  Subtotal1,829  2,223  2,519  2,993  
With an allowance recorded:With an allowance recorded:With an allowance recorded:
Commercial, financial, agricultural and otherCommercial, financial, agricultural and other—  —  $—  —  —  $—  Commercial, financial, agricultural and other—  —  $—  —  —  $—  
Real estate constructionReal estate construction—  —  —  —  —  —  Real estate construction308  308  171  —  —  —  
Residential real estateResidential real estate—  —  —  —  —  —  Residential real estate—  —  —  —  —  —  
Commercial real estateCommercial real estate1,847  1,862  204  —  —  —  Commercial real estate1,818  1,854  176  —  —  —  
Loans to individualsLoans to individuals—  —  —  —  —  —  Loans to individuals—  —  —  —  —  —  
SubtotalSubtotal1,847  1,862  204  —  —  —  Subtotal2,126  2,162  347  —  —  —  
TotalTotal$4,178  $4,680  $204  $2,519  $2,993  $—  Total$3,955  $4,385  $347  $2,519  $2,993  $—  

For the Three Months Ended March 31, For the Six Months Ended June 30,
20202019 20202019
Originated LoansAcquired LoansOriginated LoansAcquired LoansOriginated LoansAcquired LoansOriginated LoansAcquired Loans
Average
recorded
investment
Interest
income
recognized
Average
recorded
investment
Interest
income
recognized
Average
recorded
investment
Interest
income
recognized
Average
recorded
investment
Interest
income
recognized
Average
recorded
investment
Interest
income
recognized
Average
recorded
investment
Interest
income
recognized
Average
recorded
investment
Interest
income
recognized
Average
recorded
investment
Interest
income
recognized
(dollars in thousands) (dollars in thousands)
With no related allowance recorded:With no related allowance recorded:With no related allowance recorded:
Commercial, financial, agricultural and otherCommercial, financial, agricultural and other$925  $ $74  $—  $2,707  $13  $439  $—  Commercial, financial, agricultural and other$6,894  $34  $74  $—  $2,216  $ $1,035  $—  
Real estate constructionReal estate construction—  —  —  —  —  —  —  —  Real estate construction—  —  —  —  —  —  —  —  
Residential real estateResidential real estate10,529  78  2,090   10,798  72  1,981   Residential real estate10,182  159  1,922  17  10,577  186  1,975   
Commercial real estateCommercial real estate4,086  22  229  —  3,994  36  982   Commercial real estate14,367  67  238  —  3,256  101  620  18  
Loans to individualsLoans to individuals445   12  —  324   14  —  Loans to individuals457   11  —  340   14  —  
SubtotalSubtotal15,985  107  2,405   17,823  122  3,416   Subtotal31,900  266  2,245  17  16,389  301  3,644  23  
With an allowance recorded:With an allowance recorded:With an allowance recorded:
Commercial, financial, agricultural and otherCommercial, financial, agricultural and other7,838  18  —  —  3,068   —  —  Commercial, financial, agricultural and other1,881   —  —  3,784  30  —  —  
Real estate constructionReal estate construction—  —  —  —  —  —  —  —  Real estate construction—  —  51  —  —  —  —  —  
Residential real estateResidential real estate325  —  —  —  604   —  —  Residential real estate290  —  —  —  571  12  —  —  
Commercial real estateCommercial real estate13,114   616  —  3,278   —  —  Commercial real estate11,509   1,222  —  5,550   162  —  
Loans to individualsLoans to individuals—  —  —  —  —  —  —  —  Loans to individuals—  —  —  —  —  —  —  —  
SubtotalSubtotal21,277  19  616  —  6,950   —  —  Subtotal13,680   1,273  —  9,905  44  162  —  
TotalTotal$37,262  $126  $3,021  $ $24,773  $131  $3,416  $ Total$45,580  $271  $3,518  $17  $26,294  $345  $3,806  $23  
Unfunded commitments related to nonperforming loans were $3.7 million at March 31, 2020 and $1.7 million at December 31, 2019. After consideration of the requirements to draw and available collateral related to these commitments, a reserve of $23
2123

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Three Months Ended June 30,
20202019
Originated LoansAcquired LoansOriginated LoansAcquired Loans
Average
recorded
investment
Interest
Income
Recognized
Average
recorded
investment
Interest
Income
Recognized
Average
recorded
investment
Interest
Income
Recognized
Average
recorded
investment
Interest
Income
Recognized
(dollars in thousands)
With no related allowance recorded:
Commercial, financial, agricultural and other$6,758  $12  $74  $—  $2,268  $ $1,630  $—  
Real estate construction—  —  —  —  —  —  —  —  
Residential real estate9,836  80  1,753  15  10,242  115  1,969   
Commercial real estate17,411  48  246  —  3,034  65  423  17  
Loans to individuals468   11  —  357   14  —  
Subtotal34,473  144  2,084  15  15,901  190  4,036  21  
With an allowance recorded:
Commercial, financial, agricultural and other2,028  —  —  —  3,957  16  —  —  
Real estate construction—  —  103  —  —  —  —  —  
Residential real estate254  —  —  —  653   —  —  
Commercial real estate17,142  —  1,828  —  7,304   161  —  
Loans to individuals—  —  —  —  —  —  —  —  
Subtotal19,424  —  1,931  —  11,914  24  161  —  
Total$53,897  $144  $4,015  $15  $27,815  $214  $4,197  $21  
Unfunded commitments related to nonperforming loans were $1.1 million at June 30, 2020 and $1.7 million at December 31, 2019. After consideration of the requirements to draw and available collateral related to these commitments, a reserve of $23 thousand and $12 thousand was established for these off balance sheet exposures at March 31,June 30, 2020 and December 31, 2019, respectively.
The following table provides detail as to the total troubled debt restructured loans and total commitments outstanding on troubled debt restructured loans:
March 31, 2020December 31, 2019June 30, 2020December 31, 2019
(dollars in thousands) (dollars in thousands)
Troubled debt restructured loansTroubled debt restructured loansTroubled debt restructured loans
Accrual statusAccrual status$7,509  $7,542  Accrual status$7,455  $7,542  
Nonaccrual statusNonaccrual status5,522  6,037  Nonaccrual status3,600  6,037  
TotalTotal$13,031  $13,579  Total$11,055  $13,579  
CommitmentsCommitmentsCommitments
Letters of creditLetters of credit$60  $60  Letters of credit$60  $60  
Unused lines of creditUnused lines of credit213  163  Unused lines of credit984  163  
TotalTotal$273  $223  Total$1,044  $223  
24

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables provide detail, including specific reserves and reasons for modification, related to loans identified as troubled debt restructurings:
For the Three Months Ended March 31, 2020 For the Six Months Ended June 30, 2020
 Type of Modification     Type of Modification   
Number
of
Contracts
Extend
Maturity
Modify
Rate
Modify
Payments
Total
Pre-Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Specific
Reserve
Number
of
Contracts
Extend
Maturity
Modify
Rate
Modify
Payments
Total
Pre-Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Specific
Reserve
(dollars in thousands) (dollars in thousands)
Commercial, financial, agricultural and other—  $—  $—  $—  $—  $—  $—  
Residential real estateResidential real estate —  —  118  118  117  —  Residential real estate $—  $—  $264  $264  $256  $—  
Commercial real estateCommercial real estate —  —  12  12  12  —  Commercial real estate —  —  12  12   —  
Loans to individualsLoans to individuals —  18  129  147  144  —  Loans to individuals10  —  71  124  195  186  —  
TotalTotal12  $—  $18  $259  $277  $273  $—  Total16  $—  $71  $400  $471  $451  $—  

For the Three Months Ended March 31, 2019 For the Six Months Ended June 30, 2019
 Type of Modification     Type of Modification   
Number
of
Contracts
Extend
Maturity
Modify
Rate
Modify
Payments
Total
Pre-Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Specific
Reserve
Number
of
Contracts
Extend
Maturity
Modify
Rate
Modify
Payments
Total
Pre-Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Specific
Reserve
(dollars in thousands) (dollars in thousands)
Commercial, financial, agricultural and otherCommercial, financial, agricultural and other $—  $—  $61  $61  $62  $—  Commercial, financial, agricultural and other $—  $—  $61  $61  $62  $—  
Residential real estateResidential real estate 17  49  514  580  570  40  Residential real estate11  17  117  788  922  897  37  
Commercial real estateCommercial real estate —  556  242  798  767  —  Commercial real estate —  —  6,119  6,119  5,854  969  
Loans to individualsLoans to individuals —  —  48  48  46  —  Loans to individuals —  —  62  62  56  —  
TotalTotal12  $17  $605  $865  $1,487  $1,445  $40  Total20  $17  $117  $7,030  $7,164  $6,869  $1,006  
The troubled debt restructurings included in the above tables are also included in the impaired loan tables provided earlier in this note. Loans defined as modified due to a change in rate may include loans that were modified for a change in rate as well as a re-amortization of the principal and an extension of the maturity. For the six months ended June 30, 2020 and 2019, $71 thousand and $117 thousand, respectively, of total rate modifications represent loans with modifications to the rate as well as payment as a result of re-amortization. For both 2020 and 2019 the changes in loan balances between the pre-modification balance and the post-modification balance are due to customer payments.

 For the Three Months Ended June 30, 2020
  Type of Modification   
 Number
of
Contracts
Extend
Maturity
Modify
Rate
Modify
Payments
Total
Pre-Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Specific
Reserve
 (dollars in thousands)
Residential real estate $—  $—  $146  $146  $142  $—�� 
Loans to individuals —  53   54  55  —  
Total $—  $53  $147  $200  $197  $—  

25

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 For the Three Months Ended June 30, 2019
  Type of Modification   
 Number
of
Contracts
Extend
Maturity
Modify
Rate
Modify
Payments
Total
Pre-Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Specific
Reserve
 (dollars in thousands)
Residential real estate $—  $68  $273  $341  $337  $969  
Commercial real estate —  —  5,878  5,878  5,613  —  
Loans to individuals —  —  14  14  14  —  
Total10  $—  $68  $6,165  $6,233  $5,964  $969  
The troubled debt restructurings included in the above tables are also included in the impaired loan tables provided earlier in this note. Loans defined as modified due to a change in rate may include loans that were modified for a change in rate as well as a re-amortization of the principal and an extension of the maturity. For the three months ended March 31,June 30, 2020 and 2019, $18$53 thousand and $0.6 million,$68 thousand, respectively, of total rate modifications represent loans with modifications to the rate as well as
22

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

payment as a result of re-amortization. For both 2020 and 2019 the changes in loan balances between the pre-modification balance and the post-modification balance are due to customer payments.
A troubled debt restructuring is considered to be in default when a restructured loan is 90 days or more past due. The following table provides information related to loans that were restructured within the past twelve months and that were considered to be in default during the six months ended June 30:
��20202019
 Number of
Contracts
Recorded
Investment
Number of
Contracts
Recorded
Investment
 (dollars in thousands)
Residential real estate $50   $22  
Loans to individuals—  —   10  
Total $50   $32  
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 three months ended March 31:June 30:
 20202019
 Number of
Contracts
Recorded
Investment
Number of
Contracts
Recorded
Investment
 (dollars in thousands)
Residential real estate $71  —  $—  
Loans to individuals—  —   10  
Total $71   $10  
The following tables provide detail related to the allowance for credit losses:
 For the Three Months Ended March 31, 2020
 Commercial,
financial,
agricultural
and other
Real estate
construction
Residential
real estate
Commercial
real estate
Loans to
individuals
Total
 (dollars in thousands)
Allowance for credit losses:
Originated loans:
Beginning balance$20,221  $2,558  $4,091  $19,731  $4,984  $51,585  
Charge-offs(486) —  (552) (265) (2,483) (3,786) 
Recoveries68  —  62  44  212  386  
Provision (credit)7,575  294  4,123  11,755  5,555  29,302  
Ending balance27,378  2,852  7,724  31,265  8,268  77,487  
Acquired loans:
Beginning balance13  —   37  —  52  
Charge-offs—  —  (25) (1) (136) (162) 
Recoveries13  —  13  —   33  
Provision (credit)324  —  10  1,202  129  1,665  
Ending balance350  —  —  1,238  —  1,588  
Total ending balance$27,728  $2,852  $7,724  $32,503  $8,268  $79,075  
Ending balance: individually evaluated for impairment$2,727  $—  $—  $7,072  $—  $9,799  
Ending balance: collectively evaluated for impairment25,001  2,852  7,724  25,431  8,268  69,276  
Loans:
Ending balance1,272,240  413,458  1,691,140  2,190,098  747,008  6,313,944  
Ending balance: individually evaluated for impairment7,544  —  1,506  36,513  —  45,563  
Ending balance: collectively evaluated for impairment1,264,696  413,458  1,689,634  2,153,585  747,008  6,268,381  
 20202019
 Number of
Contracts
Recorded
Investment
Number of
Contracts
Recorded
Investment
 (dollars in thousands)
Residential real estate $50   $22  
Total $50   $22  

2326

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 For the Three Months Ended March 31, 2019
 Commercial,
financial,
agricultural
and other
Real estate
construction
Residential
real estate
Commercial
real estate
Loans to
individuals
Total
 (dollars in thousands)
Allowance for credit losses:
Originated loans:
Beginning balance$19,235  $2,002  $3,934  $18,382  $4,033  $47,586  
Charge-offs(483) —  (136) (299) (1,110) (2,028) 
Recoveries76  42  81  41  114  354  
Provision (credit)987  210  271  1,094  1,126  3,688  
Ending balance19,815  2,254  4,150  19,218  4,163  49,600  
Acquired loans:
Beginning balance139  —  35   —  178  
Charge-offs(526) —  (45) —  (5) (576) 
Recoveries11  —  —  24  —   44  
Provision (credit)394  —  21  (4) (4) 407  
Ending balance18  —  35  —  —  53  
Total ending balance$19,833  $2,254  $4,185  $19,218  $4,163  $49,653  
Ending balance: individually evaluated for impairment$1,012  $—  $119  $914  $—  $2,045  
Ending balance: collectively evaluated for impairment18,821  2,254  4,066  18,304  4,163  47,608  
Loans:
Ending balance1,180,320  389,387  1,565,349  2,138,376  597,638  5,871,070  
Ending balance: individually evaluated for impairment5,627  —  3,938  11,111  —  20,676  
Ending balance: collectively evaluated for impairment1,174,693  389,387  1,561,411  2,127,265  597,638  5,850,394  
The following tables provide detail related to the allowance for credit losses:
 For the Six Months Ended June 30, 2020
 Commercial,
financial,
agricultural
and other
Real estate
construction
Residential
real estate
Commercial
real estate
Loans to
individuals
Total
 (dollars in thousands)
Allowance for credit losses:
Originated loans:
Beginning balance$20,221  $2,558  $4,091  $19,731  $4,984  $51,585  
Charge-offs(1,771) —  (559) (2,415) (3,809) (8,554) 
Recoveries117  26  121  44  476  784  
Provision (credit)6,245  483  5,586  15,770  7,683  35,767  
Ending balance24,812  3,067  9,239  33,130  9,334  79,582  
Acquired loans:
Beginning balance13  —   37  —  52  
Charge-offs—  —  (91) (2) (207) (300) 
Recoveries15  —  25  —   48  
Provision (credit)304  171  64  1,321  199  2,059  
Ending balance332  171  —  1,356  —  1,859  
Total ending balance$25,144  $3,238  $9,239  $34,486  $9,334  $81,441  
Ending balance: individually evaluated for impairment$958  $171  $—  $5,766  $—  $6,895  
Ending balance: collectively evaluated for impairment24,186  3,067  9,239  28,720  9,334  74,546  
Loans:
Ending balance1,773,099  416,329  1,723,288  2,224,710  784,649  6,922,075  
Ending balance: individually evaluated for impairment3,336  308  1,498  32,537  —  37,679  
Ending balance: collectively evaluated for impairment1,769,763  416,021  1,721,790  2,192,173  784,649  6,884,396  

27

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 For the Six Months Ended June 30, 2019
 Commercial,
financial,
agricultural
and other
Real estate
construction
Residential
real estate
Commercial
real estate
Loans to
individuals
Total
 (dollars in thousands)
Allowance for credit losses:
Originated loans:
Beginning balance$19,235  $2,002  $3,934  $18,382  $4,033  $47,586  
Charge-offs(842) —  (234) (299) (2,478) (3,853) 
Recoveries139  84  184  79  257  743  
Provision (credit)2,146  405  249  1,125  2,595  6,520  
Ending balance20,678  2,491  4,133  19,287  4,407  50,996  
Acquired loans:
Beginning balance139  —  35   —  178  
Charge-offs(552) —  (46) —  (6) (604) 
Recoveries32  —  35  —  14  81  
Provision (credit)396  —   21  (8) 410  
Ending balance15  —  25  25  —  65  
Total ending balance$20,693  $2,491  $4,158  $19,312  $4,407  $51,061  
Ending balance: individually evaluated for impairment$1,330  $—  $87  $1,113  $—  $2,530  
Ending balance: collectively evaluated for impairment19,363  2,491  4,071  18,199  4,407  48,531  
Loans:
Ending balance1,236,424  441,854  1,579,441  2,118,582  626,758  6,003,059  
Ending balance: individually evaluated for impairment11,206  —  4,065  10,216  —  25,487  
Ending balance: collectively evaluated for impairment1,225,218  441,854  1,575,376  2,108,366  626,758  5,977,572  
28

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 For the Three Months Ended June 30, 2020
 Commercial,
financial,
agricultural
and other
Real estate
construction
Residential
real estate
Commercial
real estate
Loans to
individuals
Total
 (dollars in thousands)
Allowance for credit losses:
Originated loans:
Beginning balance$27,378  $2,852  $7,724  $31,265  $8,268  $77,487  
Charge-offs(1,285) —  (7) (2,150) (1,326) (4,768) 
Recoveries49  26  59  —  264  398  
Provision (credit)(1,330) 189  1,463  4,015  2,128  6,465  
Ending balance24,812  3,067  9,239  33,130  9,334  79,582  
Acquired loans:
Beginning balance350  —  —  1,238  —  1,588  
Charge-offs—  —  (66) (1) (71) (138) 
Recoveries —  12  —   15  
Provision (credit)(20) 171  54  119  70  394  
Ending balance332  171  —  1,356  —  1,859  
Total ending balance$25,144  $3,238  $9,239  $34,486  $9,334  $81,441  


 For the Three Months Ended June 30, 2019
 Commercial,
financial,
agricultural
and other
Real estate
construction
Residential
real estate
Commercial
real estate
Loans to
individuals
Total
 (dollars in thousands)
Allowance for credit losses:
Originated loans:
Beginning balance$19,815  $2,254  $4,150  $19,218  $4,163  $49,600  
Charge-offs(359) —  (98) —  (1,368) (1,825) 
Recoveries63  42  103  38  143  389  
Provision (credit)1,159  195  (22) 31  1,469  2,832  
Ending balance20,678  2,491  4,133  19,287  4,407  50,996  
Acquired loans:
Beginning balance18  —  35  —  —  53  
Charge-offs(26) —  (1) —  (1) (28) 
Recoveries21  —  11  —   37  
Provision (credit) —  (20) 25  (4)  
Ending balance15  —  25  25  —  65  
Total ending balance$20,693  $2,491  $4,158  $19,312  $4,407  $51,061  


Note 9 Leases
On January 1, 2019, the Company adopted ASU 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842 using the transition option provided in ASU 2018-11, which provides for the modified retrospective approach. Under this approach comparative periods were not restated and no cumulative effect adjustment to the opening balance of retained earnings was required.
29

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

First Commonwealth has elected to apply certain practical expedients provided under the standard including (i) to not apply the requirements in the new standard to short-term leases (ii) to not reassess the lease classification for any expired or existing lease (iii) to account 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 Commonwealth has no material leasing arrangements for which it is the lessor of property or equipment.
Adoption of this standard resulted in the Company recognizing right of-use ("ROU") assets of $38.5 million and a lease liability of $41.8 million on January 1, 2019.
24

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table represents the unaudited Consolidated Statements of Condition classification of the Company’s ROU assets and lease liabilities, lease costs and other lease information.
March 31, 2020December 31, 2019June 30, 2020December 31, 2019
Balance sheet:Balance sheet:Balance sheet:
Operating lease asset classified as premises and equipment Operating lease asset classified as premises and equipment$47,777  $48,642  Operating lease asset classified as premises and equipment$46,881  $48,642  
Operating lease liability classified as other liabilities Operating lease liability classified as other liabilities52,086  52,894  Operating lease liability classified as other liabilities51,232  52,894  
For the Three Months EndedFor the Three Months EndedFor the Six Months Ended
March 31, 2020March 31, 2019June 30, 2020June 30, 2019June 30, 2020June 30, 2019
Income statement:Income statement:Income statement:
Operating lease cost classified as occupancy and equipment expense Operating lease cost classified as occupancy and equipment expense$1,368  $1,337   Operating lease cost classified as occupancy and equipment expense$1,368  $1,347  $2,736  $2,684  
Weighted average lease term, in yearsWeighted average lease term, in years15.1116.28Weighted average lease term, in years14.9616.10
Weighted average discount rateWeighted average discount rate3.42 %3.49 %Weighted average discount rate3.41 %3.48 %
Operating cash flowsOperating cash flows$1,312  $1,119  Operating cash flows$1,325  $1,136  
The ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. First Commonwealth's lease agreements often include one or more options to renew at the Company's discretion. If we consider the renewal option to be reasonably certain, we include the extended term in the calculation of the ROU asset and lease liability.
First Commonwealth uses incremental borrowing rates when calculating the lease liability because the rate implicit in the lease is not readily determinable. The incremental borrowing rate used by First Commonwealth is an amortizing loan rate obtained from the Federal Home Loan Bank ("FHLB") of Pittsburgh. This rate is consistent with a collateralized borrowing rate and is available for terms similar to the lease payment schedules.
Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31,June 30, 2020 were as follows (dollars in thousands):
For the twelve months ended:
March 31,June 30, 2021$5,1775,129  
March 31,June 30, 20225,0645,027  
March 31,June 30, 20234,9604,963  
March 31,June 30, 20244,9014,866  
March 31,June 30, 20254,7714,753  
Thereafter43,20442,020  
Total future minimum lease payments68,07766,758  
Less remaining imputed interest15,99115,526  
Operating lease liability$52,08651,232  

30

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10 Income Taxes
In accordance with FASB ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes,” at March 31,June 30, 2020 and December 31, 2019, First Commonwealth had no0 material unrecognized tax benefits or accrued interest and penalties. If applicable, First Commonwealth will record interest and penalties as a component of noninterest expense.
First Commonwealth is subject to routine audits of our tax returns by the Internal Revenue Service (“IRS”) as well as all states in which we conduct business. Generally, tax years prior to the year ended December 31, 2016 are no longer open to examination by federal and state taxing authorities.

25

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 11 Fair Values of Assets and Liabilities
FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosures for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). All non-financial assets are included either as a separate line item on the unaudited Consolidated Statements of Financial Condition or in the “Other assets” category of the unaudited Consolidated Statements of Financial Condition. Currently, First Commonwealth does not have any non-financial liabilities to disclose.
FASB ASC Topic 825, “Financial Instruments,” permits entities to irrevocably elect to measure select financial instruments and certain other items at fair value. The unrealized gains and losses are required to be included in earnings each reporting period for the items that fair value measurement is elected. First Commonwealth has elected not to measure any existing financial instruments at fair value under FASB ASC Topic 825; however, in the future we may elect to adopt this guidance for select financial instruments.
 
In accordance with FASB ASC Topic 820, First Commonwealth groups financial assets and financial liabilities measured at fair value in three levels based on the principal markets in which the assets and liabilities are transacted and the observability of the data points used to determine fair value. These levels are:
Level 1 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange (“NYSE”). Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 – Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained for identical or comparable assets or liabilities from alternative pricing sources with reasonable levels of price transparency. Level 2 includes Obligations of U.S. Government securities issued by Agencies and Sponsored Enterprises, Obligations of States and Political Subdivisions, corporate securities, FHLB stock, loans held for sale, interest rate derivatives (including interest rate caps, interest rate collars, interest rate swaps and risk participation agreements), certain other real estate owned and certain impaired loans.
Level 2 investment securities are valued by a recognized third party pricing service using observable inputs. The model used by the pricing service varies by asset class and incorporates available market, trade and bid information as well as cash flow information when applicable. Because many fixed-income investment securities do not trade on a daily basis, the model uses available information such as benchmark yield curves, benchmarking of like investment securities, sector groupings and matrix pricing. The model will also use processes such as an option adjusted spread to assess the impact of interest rates and to develop prepayment estimates. Market inputs normally used in the pricing model include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications.
Management validates the market values provided by the third party service by having another recognized pricing service price 100% of the securities on an annual basis and a random sample of securities each quarter, monthly monitoring of variances from prior period pricing and, on a monthly basis, evaluating pricing changes compared to expectations based on changes in the financial markets.
Other investments recorded in the unaudited Consolidated Statements of Financial Condition are primarily comprised of FHLB stock whose estimated fair value is based on its par value. Additional information on FHLB stock is provided in Note 7, “Impairment of Investment Securities.”
Loans held for sale primarily include residential mortgage loans originated for sale in the secondary mortgage market. The estimated fair value for these loans was determined on the basis of rates obtained in the respective secondary market. Loans held for sale could also include commercial loans for which fair value is determined using an executed trade or market bid obtained from potential buyers.
Interest rate derivatives are reported at an estimated fair value utilizing Level 2 inputs and are included in other assets and other liabilities, and consist of interest rate swaps where there is no significant deterioration in the counterparties' and/or loan customers' credit risk since origination of the interest rate swap as well as interest rate caps, interest rate collars and risk participation agreements. First Commonwealth values its interest rate swap and cap positions using a yield curve by taking market prices/rates for an appropriate set of instruments. The set of instruments currently used to determine the U.S. Dollar yield curve includes cash LIBOR rates from overnight to one year, Eurodollar futures contracts and swap rates from one year to
2631

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

held for sale could also include commercial loans for which fair value is determined using an executed trade or market bid obtained from potential buyers.
Interest rate derivatives are reported at an estimated fair value utilizing Level 2 inputs and are included in other assets and other liabilities, and consist of interest rate swaps where there is no significant deterioration in the counterparties' and/or loan customers' credit risk since origination of the interest rate swap as well as interest rate caps, interest rate collars and risk participation agreements. First Commonwealth values its interest rate swap and cap positions using a yield curve by taking market prices/rates for an appropriate set of instruments. The set of instruments currently used to determine the U.S. Dollar yield curve includes cash LIBOR rates from overnight to one year, Eurodollar futures contracts and swap rates from one year to thirty years. These yield curves determine the valuations of interest rate swaps. Interest rate derivatives are further described in Note 12, “Derivatives.”
For purposes of potential valuation adjustments to our derivative positions, First Commonwealth evaluates the credit risk of its counterparties as well as our own credit risk. Accordingly, we have considered factors such as the likelihood of default, expected loss given default, net exposures and remaining contractual life, among other things, in determining if any fair value adjustments related to credit risk are required. We review our counterparty exposure quarterly, and when necessary, appropriate adjustments are made to reflect the exposure.
We also utilize this approach to estimate our own credit risk on derivative liability positions. In 2020, we have not realized any losses due to a counterparty's inability to pay any uncollateralized positions.
Interest rate derivatives also include interest rate forwards entered into to hedge residential mortgage loans held for sale and the related interest-rate lock commitments. This includes forward commitments to sell mortgage loans. The fair value of these derivative financial instruments are based on derivative market data inputs as of the valuation date and the underlying value of mortgage loans for rate lock commitments.
In addition, the Company hedges foreign currency risk through the use of foreign exchange forward contracts. The fair value of foreign exchange forward contracts is based on the differential between the contract price and the market-based forward rate.
The estimated fair value for other real estate owned included in Level 2 is determined by either an independent market-based appraisal less estimated costs to sell or an executed sales agreement.
Level 3 – Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker traded transactions. If the inputs used to provide the valuation are unobservable and/or there is very little, if any, market activity for the security or similar securities, the securities would be considered Level 3 securities. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. The assets included in Level 3 are non-marketable equity investments, certain interest rate derivatives, certain other real estate owned and certain impaired loans.
The estimated fair value of other investments included in Level 3 is based on carrying value as these securities do not have a readily determinable fair value.
The estimated fair value of limited partnership investments included in Level 3 is based on par value.
For interest rate derivatives included in Level 3, the fair value incorporates credit risk by considering such factors as likelihood of default and expected loss given default based on the credit quality of the underlying counterparties (loan customers).
2732

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In accordance with ASU No. 2011-4, "Fair Value Measurements (Topic 820)," the following table provides information related to quantitative inputs and assumptions used in March 31,June 30, 2020 Level 3 fair value measurements.
Fair Value (dollars
in thousands)
Valuation
Technique
Unobservable InputsRange /
(weighted average)
Fair Value (dollars
in thousands)
Valuation
Technique
Unobservable InputsRange /
(weighted average)
March 31, 2020
June 30, 2020June 30, 2020
Other InvestmentsOther Investments$1,670  CarryingValueN/AN/AOther Investments$1,670  CarryingValueN/AN/A
Impaired LoansImpaired Loans758(a)Gas Reserve StudyDiscount rate10.00%Impaired Loans758  (a)Gas Reserve StudyDiscount rate10.00%
Gas per MMBTU$1.46 - $1.48 (b)Gas per MMBTU$1.46 - $1.48 (b)
Oil per BBL/d$36.00 - $36.00 (b)Oil per BBL/d$36.00 - $36.00 (b)
Limited Partnership InvestmentsLimited Partnership Investments6,223  Par ValueN/AN/ALimited Partnership Investments6,406  Par ValueN/AN/A
December 31, 2019December 31, 2019December 31, 2019
Other InvestmentsOther Investments$1,670  CarryingValueN/AN/AOther Investments$1,670  CarryingValueN/AN/A
Impaired LoansImpaired Loans884(a)Gas Reserve StudyDiscount rate10.00%Impaired Loans884  (a)Gas Reserve StudyDiscount rate10.00%
Gas per MMBTU$2.61 - $3.49 (b)Gas per MMBTU$2.61 - $3.49 (b)
Oil per BBL/d$47.09 - $53.14 (b)Oil per BBL/d$47.09 - $53.14 (b)
2,239  Discounted Cash FlowDiscount Rate$3.84 - $9.502,239  Discounted Cash FlowDiscount Rate$3.84 - $9.50
Limited Partnership InvestmentsLimited Partnership Investments5,795  Par ValueN/AN/ALimited Partnership Investments5,795  Par ValueN/AN/A
 
(a)The remainder of impaired 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 - million British thermal units; BBL/d - barrels per day.
The discount rate is the significant unobservable input used in the fair value measurement of impaired 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 impaired loans relate to gas, oil and natural gas prices. Increases in these prices would result in an increase in the estimated fair value of the loans, while a decrease in these prices would result in a lower fair value measurement.
The tables below present the balances of assets and liabilities measured at fair value on a recurring basis:
March 31, 2020 June 30, 2020
Level 1Level 2Level 3Total Level 1Level 2Level 3Total
(dollars in thousands) (dollars in thousands)
Obligations of U.S. Government Agencies:Obligations of U.S. Government Agencies:Obligations of U.S. Government Agencies:
Mortgage-Backed Securities - ResidentialMortgage-Backed Securities - Residential$—  $8,116  $—  $8,116  Mortgage-Backed Securities - Residential$—  $7,929  $—  $7,929  
Mortgage-Backed Securities - CommercialMortgage-Backed Securities - Commercial—  240,757  —  240,757  Mortgage-Backed Securities - Commercial—  235,594  —  235,594  
Obligations of U.S. Government-Sponsored Enterprises:Obligations of U.S. Government-Sponsored Enterprises:Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities - ResidentialMortgage-Backed Securities - Residential—  689,224  —  689,224  Mortgage-Backed Securities - Residential—  624,155  —  624,155  
Other Government-Sponsored EnterprisesOther Government-Sponsored Enterprises—  1,004  —  1,004  Other Government-Sponsored Enterprises—  1,001  —  1,001  
Obligations of States and Political SubdivisionsObligations of States and Political Subdivisions—  10,027  —  10,027  Obligations of States and Political Subdivisions—  8,984  —  8,984  
Corporate SecuritiesCorporate Securities—  23,498  —  23,498  Corporate Securities—  24,477  —  24,477  
Total Securities Available for SaleTotal Securities Available for Sale—  972,626  —  972,626  Total Securities Available for Sale—  902,140  —  902,140  
Other InvestmentsOther Investments—  17,745  1,670  19,415  Other Investments—  10,602  1,670  12,272  
Loans Held for SaleLoans Held for Sale—  25,783  —  25,783  Loans Held for Sale—  30,409  —  30,409  
Other Assets(a)
Other Assets(a)
—  57,676  6,223  63,899  
Other Assets(a)
—  62,036  6,406  68,442  
Total AssetsTotal Assets$—  $1,073,830  $7,893  $1,081,723  Total Assets$—  $1,005,187  $8,076  $1,013,263  
Other Liabilities(a)
Other Liabilities(a)
$—  $63,976  $—  $63,976  
Other Liabilities(a)
$—  $68,883  $—  $68,883  
Total LiabilitiesTotal Liabilities$—  $63,976  $—  $63,976  Total Liabilities$—  $68,883  $—  $68,883  
(a)Hedging and non-hedging interest rate derivatives and limited partnership investments

2833

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 December 31, 2019
 Level 1Level 2Level 3Total
 (dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities - Residential$—  $8,341  $—  $8,341  
Mortgage-Backed Securities - Commercial—  189,133  —  189,133  
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities - Residential—  661,947  —  661,947  
Other Government-Sponsored Enterprises—  1,000  —  1,000  
Obligations of States and Political Subdivisions—  17,909  —  17,909  
Corporate Securities—  23,962  —  23,962  
Total Securities Available for Sale—  902,292  —  902,292  
Other Investments—  15,091  1,670  16,761  
Loans Held for Sale—  15,989  —  15,989  
Other Assets(a)
—  21,894  5,795  27,689  
Total Assets$—  $955,266  $7,465  $962,731  
Other Liabilities(a)
$—  $21,469  $—  $21,469  
Total Liabilities$—  $21,469  $—  $21,469  
(a)Hedging and non-hedging interest rate derivatives and limited partnership investments

For the threesix months ended March 31,June 30, changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:
2020 2020
Other InvestmentsOther
Assets
Total Other InvestmentsOther
Assets
Total
(dollars in thousands) (dollars in thousands)
Balance, beginning of periodBalance, beginning of period$1,670  $5,795  $7,465  Balance, beginning of period$1,670  $5,795  $7,465  
Total gains or lossesTotal gains or lossesTotal gains or losses
Included in earningsIncluded in earnings—  —  —  Included in earnings—  —  —  
Included in other comprehensive incomeIncluded in other comprehensive income—  —  —  Included in other comprehensive income—  —  —  
Purchases, issuances, sales and settlementsPurchases, issuances, sales and settlementsPurchases, issuances, sales and settlements
PurchasesPurchases—  428  428  Purchases—  611  611  
IssuancesIssuances—  —  —  Issuances—  —  —  
SalesSales—  —  —  Sales—  —  —  
SettlementsSettlements—  —  —  Settlements—  —  —  
Transfers from Level 3Transfers from Level 3—  —  —  Transfers from Level 3—  —  —  
Transfers into Level 3Transfers into Level 3—  —  —  Transfers into Level 3—  —  —  
Balance, end of periodBalance, end of period$1,670  $6,223  $7,893  Balance, end of period$1,670  $6,406  $8,076  
 
2934

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2019 2019
Other InvestmentsOther
Assets
Total Other InvestmentsOther
Assets
Total
(dollars in thousands) (dollars in thousands)
Balance, beginning of periodBalance, beginning of period$1,670  $2,696  $4,366  Balance, beginning of period$1,670  $2,696  $4,366  
Total gains or lossesTotal gains or lossesTotal gains or losses
Included in earningsIncluded in earnings—  —  —  Included in earnings—  —  —  
Included in other comprehensive incomeIncluded in other comprehensive income—  (47) (47) Included in other comprehensive income—  (47) (47) 
Purchases, issuances, sales and settlementsPurchases, issuances, sales and settlementsPurchases, issuances, sales and settlements
PurchasesPurchases—  551  551  Purchases—  663  663  
IssuancesIssuances—  —  —  Issuances—  —  —  
SalesSales—  —  —  Sales—  —  —  
SettlementsSettlements—  —  —  Settlements—  —  —  
Transfers from Level 3Transfers from Level 3—  —  —  Transfers from Level 3—  —  —  
Transfers into Level 3Transfers into Level 3—  —  —  Transfers into Level 3—  —  —  
Balance, end of periodBalance, end of period$1,670  $3,200  $4,870  Balance, end of period$1,670  $3,312  $4,982  
During the threesix months ended March 31,June 30, 2020 and 2019, there were 0 transfers between fair value Levels 1, 2 or 3. There were 0 gains or losses included in earnings for the periods presented that are attributable to the change in realized gains (losses) relating to assets held at March 31,June 30, 2020 and 2019.
For the three months ended June 30, changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:
 2020
 Other InvestmentsOther
Assets
Total
 (dollars in thousands)
Balance, beginning of period$1,670  $6,223  $7,893  
Total gains or losses
Included in earnings—  —  —  
Included in other comprehensive income—  —  —  
Purchases, issuances, sales and settlements
Purchases—  183  183  
Issuances—  —  —  
Sales—  —  —  
Settlements—  —  —  
Transfers from Level 3—  —  —  
Transfers into Level 3—  —  —  
Balance, end of period$1,670  $6,406  $8,076  
35

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 2019
 Other InvestmentsOther
Assets
Total
 (dollars in thousands)
Balance, beginning of period$1,670  $3,200  $4,870  
Total gains or losses
Included in earnings—  —  —  
Included in other comprehensive income—  —  —  
Purchases, issuances, sales and settlements
Purchases—  112  112  
Issuances—  —  —  
Sales—  —  —  
Settlements—  —  —  
Transfers from Level 3—  —  —  
Transfers into Level 3—  —  —  
Balance, end of period$1,670  $3,312  $4,982  
During the three months ended June 30, 2020 and 2019, there were no transfers between fair value Levels 1, 2 or 3. There were no gains or losses included in earnings for the periods presented that are attributable to the change in realized gains (losses) relating to assets held at June 30, 2020 and 2019.
The tables below present the balances of assets measured at fair value on a nonrecurring basis at:
March 31, 2020 June 30, 2020
Level 1Level 2Level 3Total Level 1Level 2Level 3Total
(dollars in thousands) (dollars in thousands)
Impaired loansImpaired loans$—  $34,995  $14,346  $49,341  Impaired loans$—  $30,026  $19,102  $49,128  
Other real estate ownedOther real estate owned—  2,935  —  2,935  Other real estate owned—  1,882  —  1,882  
Total AssetsTotal Assets$—  $37,930  $14,346  $52,276  Total Assets$—  $31,908  $19,102  $51,010  

 December 31, 2019
 Level 1Level 2Level 3Total
 (dollars in thousands)
Impaired loans$—  $12,267  $17,518  $29,785  
Other real estate owned—  2,608  —  2,608  
Total Assets$—  $14,875  $17,518  $32,393  
The following losses were realized on the assets measured on a nonrecurring basis:
For the Three Months Ended March 31, For the Three Months Ended June 30,For the Six Months Ended June 30,
20202019 2020201920202019
(dollars in thousands) (dollars in thousands)
Impaired loansImpaired loans$(8,029) $(969) Impaired loans$191  $(497) $(6,822) $(1,460) 
Other real estate ownedOther real estate owned(101) (49) Other real estate owned(26) (532) (76) (541) 
Total lossesTotal losses$(8,130) $(1,018) Total losses$165  $(1,029) $(6,898) $(2,001) 
Impaired loans over $250 thousand are individually reviewed to determine the amount of each loan considered to be at risk of non-collection. The fair value for impaired loans that are collateral basedcollateral-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 impaired loans when an observable market price or a current appraisal is not available. For real estate secured loans, First Commonwealth’s loan policy requires updated appraisals be obtained at least every twelve months on all impaired loans with balances of $250 thousand and over. For real estate secured loans with balances under $250 thousand, we rely on broker price opinions. For non-real estate secured assets, the Company normally relies on third party valuations specific to the collateral type.
3036

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The fair value for other real estate owned, determined by either an independent market-based appraisal less estimated costs to sell or an executed sales agreement, is classified as Level 2. The fair value for other real estate owned, determined using an internal valuation, is classified as Level 3. OREO has a current carrying value of $2.7$1.6 million as of March 31,June 30, 2020 and consists primarily of residential and 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 cost to sell, as determined by valuation techniques appropriate in the circumstances.
Certain other assets and liabilities, including goodwill and core deposit intangibles, are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. Additional information related to goodwill is provided in Note 13, “Goodwill.” There were no other assets or liabilities measured at fair value on a nonrecurring basis during the threesix months ended March 31,June 30, 2020.
FASB ASC 825-10, “Transition Related to FSP FAS 107-1” and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or nonrecurring basis are as discussed above. The methodologies for other financial assets and financial liabilities are discussed below.
Cash and due from banks and interest-bearing bank deposits: The carrying amounts for cash and due from banks and interest-bearing bank deposits approximate the estimated fair values of such assets.
Securities: Fair values for securities available for sale and held to maturity are based on quoted market prices, if available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The carrying value of other investments, which includes FHLB stock and other equity investments, is considered a reasonable estimate of fair value.
Loans: The fair values of all loans are estimated by discounting the estimated future cash flows using interest rates currently offered for loans with similar terms to borrowers of similar credit quality adjusted for past due and nonperforming loans.
Loans held for sale: The estimated fair value of loans held for sale is based on market bids obtained from potential buyers.
Off-balance sheet instruments: Many of First Commonwealth’s off-balance sheet instruments, primarily loan commitments and standby letters of credit, are expected to expire without being drawn upon; therefore, the commitment amounts do not necessarily represent future cash requirements. FASB ASC Topic 460, “Guarantees” clarified that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The carrying amount and fair value for standby letters of credit was $0.2 million and $0.1 million at March 31,both June 30, 2020 and December 31, 2019, respectively.2019. See Note 5, “Commitments and Contingent Liabilities,” for additional information.
Deposit liabilities: The estimated fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date because of the customers’ ability to withdraw funds immediately. The carrying value of variable rate time deposit accounts and certificates of deposit approximate their fair values at the report date. Also, fair values of fixed rate time deposits for both periods are estimated by discounting the future cash flows using interest rates currently being offered and a schedule of aggregated expected maturities.
Short-term borrowings: The fair values of borrowings from the FHLB were estimated based on the estimated incremental borrowing rate for similar type borrowings. The carrying amounts of other short-term borrowings such as federal funds purchased and securities sold under agreement to repurchase were used to approximate fair value due to the short-term nature of the borrowings.
Subordinated debt, long-term debt and capital lease obligation: The fair value is estimated by discounting the future cash flows using First Commonwealth’s estimate of the current market rate for similar types of borrowing arrangements or an announced redemption price.
3137

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents carrying amounts and fair values of First Commonwealth’s financial instruments:
March 31, 2020 June 30, 2020
 Fair Value Measurements Using:  Fair Value Measurements Using:
Carrying
Amount
TotalLevel 1Level 2Level 3 Carrying
Amount
TotalLevel 1Level 2Level 3
(dollars in thousands) (dollars in thousands)
Financial assetsFinancial assetsFinancial assets
Cash and due from banksCash and due from banks$118,413  $118,413  $118,413  $—  $—  Cash and due from banks$108,970  $108,970  $108,970  $—  $—  
Interest-bearing depositsInterest-bearing deposits15,762  15,762  15,762  —  —  Interest-bearing deposits348,763  348,763  348,763  —  —  
Securities available for saleSecurities available for sale972,626  972,626  —  972,626  —  Securities available for sale902,140  902,140  —  902,140  —  
Securities held to maturitySecurities held to maturity318,256  327,592  —  327,592  —  Securities held to maturity297,986  307,874  —  307,874  —  
Other investmentsOther investments19,415  19,415  —  17,745  1,670  Other investments12,272  12,272  —  10,602  1,670  
Loans held for saleLoans held for sale25,783  25,783  —  25,783  —  Loans held for sale30,409  30,409  —  30,409  —  
LoansLoans6,313,944  6,702,184  —  34,995  6,667,189  Loans6,922,075  7,273,280  —  30,026  7,243,254  
Financial liabilitiesFinancial liabilitiesFinancial liabilities
DepositsDeposits6,923,088  6,930,139  —  6,930,139  —  Deposits7,782,201  7,788,041  —  7,788,041  —  
Short-term borrowingsShort-term borrowings146,971  146,405  —  146,405  —  Short-term borrowings108,484  107,903  —  107,903  —  
Subordinated debtSubordinated debt170,490  156,508  —  —  156,508  Subordinated debt170,531  159,149  —  —  159,149  
Long-term debtLong-term debt56,755  58,804  —  58,804  —  Long-term debt56,590  58,476  —  58,476  —  
Capital lease obligationCapital lease obligation6,710  6,710  —  6,710  —  Capital lease obligation6,602  6,602  —  6,602  —  

 December 31, 2019
  Fair Value Measurements Using:
 Carrying
Amount
TotalLevel 1Level 2Level 3
 (dollars in thousands)
Financial assets
Cash and due from banks$102,346  $102,346  $102,346  $—  $—  
Interest-bearing deposits19,510  19,510  19,510  —  —  
Securities available for sale902,292  902,292  —  902,292  —  
Securities held to maturity337,123  338,718  —  338,718  —  
Other investments16,761  16,761  —  15,091  1,670  
Loans held for sale15,989  15,989  —  15,989  —  
Loans6,189,148  6,393,872  —  12,267  6,381,605  
Financial liabilities
Deposits6,677,615  6,677,595  —  6,677,595  —  
Short-term borrowings201,853  201,151  —  201,151  —  
Subordinated debt170,450  171,772  —  —  171,772  
Long-term debt56,917  58,051  —  58,051  —  
Capital lease obligation6,815  6,815  —  6,815  —  

3238

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12 Derivatives
Derivatives Not Designated as Hedging Instruments
First Commonwealth is a party to interest rate derivatives that are not designated as hedging instruments. These derivatives relate to interest rate swaps that First Commonwealth enters into with customers to allow customers to convert variable rate loans to a fixed rate. First Commonwealth pays interest to the customer at a floating rate on the notional amount and receives interest from the customer at a fixed rate for the same notional amount. At the same time the interest rate swap is entered into with the customer, an offsetting interest rate swap is entered into with another financial institution. First Commonwealth pays the other financial institution interest at the same fixed rate on the same notional amount as the swap entered into with the customer, and receives interest from the financial institution for the same floating rate on the same notional amount.
The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties.
We have 3237 risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are a participant. The risk participation agreements provide credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract with the financial institution. We have 14 risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are the lead bank. The risk participation agreement provides credit protection to us should the borrower fail to perform on its interest rate derivative contract with us.
First Commonwealth is also party to interest rate caps and collars that are not designated as hedging instruments. The interest rate caps relate to contracts that First Commonwealth enters into with loan customers that provide a maximum interest rate on their variable rate loan. At the same time the interest rate cap is entered into with the customer, First Commonwealth enters into an offsetting interest rate cap with another financial institution. The notional amount and maximum interest rate on both interest cap contracts are identical. The interest rate collars relate to contracts that First Commonwealth enters into with loan customers that provides both a maximum and minimum interest rate on their variable rate loan. At the same time the interest rate collar is entered into with the customer, First Commonwealth enters into an offsetting interest rate collar with another financial institution. The notional amount and the maximum and minimum interest rates on both interest collar contracts are identical.
The fee received, less the estimate of the loss for the credit exposure, was recognized in earnings at the time of the transaction.
Derivatives Designated as Hedging Instruments
In 2015, the Company entered into an interest rate swap contract that was designated as a cash flow hedge. This contract, which had a notional amount of $65.0 million, matured on March 4, 2019. The periodic net settlement of interest rate swaps was recorded as an adjustment to "Interest and fees on loans" in the unaudited Consolidated Statements of Income. For the three months ended March 31, 2019 there was a $7 thousand negative impact on net interest income as a result of these interest rate swaps.
In August 2019, the Company entered into two interest rate swap contracts that are designated as cash flow hedges. These contracts mature on August 15, 2024 and August 15, 2026 and have notional amounts of $30.0 million and $40.0 million, respectively. The Company's risk management objective for these hedges is to reduce its exposure to variability in expected future cash flows related to interest payments made on subordinated debentures benchmarked to the 3-month LIBOR rate. Therefore, the interest rate swaps convert the interest rate benchmark on the first $70.0 million of 3-month LIBOR based subordinated debentures to a fixed rate.
The periodic net settlement of these interest rate swaps are recorded as an adjustment to "Interest on subordinated debentures" in the unaudited Consolidated Statements of Income. For the three and six months ended March 31,June 30, 2020 there was a $0.1 million positivenegative impact of $66 thousand and $11 thousand, respectively, on net interest income as a result of these interest rate swaps. Changes in the fair value of the cash flow hedges are reported on the balance sheet and in OCI. When the cash flows associated with the hedged item are realized, the gain or loss included in OCI is recognized in "Interest on subordinated debentures," the same line item in the unaudited Consolidated Statements of Income as the income on the hedged items. The cash flow hedges were highly effective at March 31,June 30, 2020, and changes in the fair value attributed to hedge ineffectiveness were not material.
The Company also enters into interest rate lock commitments in conjunction with its mortgage origination business. These are commitments to originate loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. The Company locks the rate in with an investor and commits to deliver the loan if settlement occurs (“best efforts”) or commits to deliver the locked loan in a binding (“mandatory”) delivery program with an investor.
33

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Loans under mandatory rate lock commitments are covered under forward sales contracts of mortgage-backed securities (“MBS”). Forward sales contracts of MBS are recorded at fair value with changes in fair value recorded in "Other noninterest income" in the unaudited Consolidated Statements of Income. The impact to noninterest income for the three and six months ended March 31,June 30, 2020 was an increase of $0.9 million.$1.9 and $1.2 million, respectively.
39

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Interest rate lock commitments and commitments to deliver loans to investors are considered derivatives. The market value of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because they are not actively traded in stand-alone markets. We determine the fair value of rate lock commitments and delivery contracts by measuring the fair value of the underlying asset, which is impacted by current interest rates and taking into consideration the probability that the rate lock commitments will close or will be funded. At March 31,June 30, 2020, the underlying funded mortgage loan commitments had a carrying value of $13.6$19.9 million and a fair value of $15.8$22.8 million, while the underlying unfunded mortgage loan commitments had a notional amount of $41.4$44.9 million. At December 31, 2019, the underlying funded mortgage loan commitments had a carrying value of $9.8 million and a fair value of $10.7 million, while the underlying unfunded mortgage loan commitments had a notional amount of $25.5 million. The interest rate lock commitments decreased noninterest income by $0.2 million and increased other noninterest income by $0.5$0.2 million for the three and six months ended March 31, 2020.June 30, 2020, respectively.
In addition, a small amount of interest income on loans is exposed to changes in foreign exchange rates. Several commercial borrowers have a portion of their operations outside of the United States and borrow funds on a short-term basis to fund those operations. In order to reduce the risk related to the translation of foreign denominated transactions into U.S. dollars, the Company enters into foreign exchange forward contracts. These contracts relate principally to the Euro and the Canadian dollar. The contracts are recorded at fair value with changes in fair value recorded in "Other noninterest expense" in the unaudited Consolidated Statements of Income. The increase in other noninterest expense for the three and six months ended March 31,June 30, 2020 totaled $5 thousand.$8 thousand and $12 thousand, respectively. At March 31,June 30, 2020 and December 31, 2019, the underlying loans had a carrying value of $4.7$2.1 million and $4.8 million, respectively, and a fair value of $4.6$2.1 million and $4.8 million, respectively.

The following table depicts the credit value and fair value adjustments recorded related to the notional amount of derivatives outstanding as well as the notional amount of risk participation agreements participated to other banks:
March 31, 2020December 31, 2019June 30, 2020December 31, 2019
(dollars in thousands) (dollars in thousands)
Derivatives not Designated as Hedging InstrumentsDerivatives not Designated as Hedging InstrumentsDerivatives not Designated as Hedging Instruments
Credit value adjustmentCredit value adjustment$(2,013) $(272) Credit value adjustment$(2,235) $(272) 
Notional amount:Notional amount:Notional amount:
Interest rate derivativesInterest rate derivatives602,069  587,275  Interest rate derivatives613,696  587,275  
Interest rate capsInterest rate caps102,611  87,188  Interest rate caps75,898  87,188  
Interest rate collarsInterest rate collars35,354  35,354  Interest rate collars35,354  35,354  
Risk participation agreementsRisk participation agreements165,499  164,632  Risk participation agreements226,017  164,632  
Sold credit protection on risk participation agreementsSold credit protection on risk participation agreements(78,862) (69,011) Sold credit protection on risk participation agreements(78,764) (69,011) 
Interest rate optionsInterest rate options41,423  25,460  Interest rate options44,941  25,460  
Derivatives Designated as Hedging InstrumentsDerivatives Designated as Hedging InstrumentsDerivatives Designated as Hedging Instruments
Interest rate swaps:Interest rate swaps:Interest rate swaps:
Fair value adjustmentFair value adjustment(3,779) 801  Fair value adjustment(4,316) 801  
Notional amountNotional amount70,000  70,000  Notional amount70,000  70,000  
Interest rate forwards:Interest rate forwards:Interest rate forwards:
Fair value adjustmentFair value adjustment(544) (63) Fair value adjustment(297) (63) 
Notional amountNotional amount40,000  30,000  Notional amount45,000  30,000  
Foreign exchange forwards:Foreign exchange forwards:Foreign exchange forwards:
Fair value adjustmentFair value adjustment37  (41) Fair value adjustment—  (41) 
Notional amountNotional amount4,670  4,789  Notional amount2,121  4,789  
 
3440

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The table below presents the change in the fair value of derivative assets and derivative liabilities attributable to credit risk or fair value changes included in "Other income," 'Other expense," "Interest on subordinated debentures" or "Interest and fees on loans" in the unaudited Consolidated Statements of Income:
For the Three Months Ended March 31, For the Three Months Ended June 30,For the Six Months Ended June 30,
20202019 2020201920202019
(dollars in thousands) (dollars in thousands)
Non-hedging interest rate derivativesNon-hedging interest rate derivativesNon-hedging interest rate derivatives
Decrease in other income$(811) $(470) 
Increase (decrease) in other incomeIncrease (decrease) in other income$1,672  $35  $(753) $453  
Increase in other expenseIncrease in other expense—  —  Increase in other expense—  —  —  —  
Hedging interest rate derivativesHedging interest rate derivativesHedging interest rate derivatives
Decrease in interest and fees on loansDecrease in interest and fees on loans—  (118) Decrease in interest and fees on loans—  —  —  (118) 
Decrease in interest from subordinated debentures(54) —  
Increase in interest from subordinated debenturesIncrease in interest from subordinated debentures66  —  11  —  
Increase in other expenseIncrease in other expense—   Increase in other expense—  —  —   
Hedging interest rate forwardsHedging interest rate forwardsHedging interest rate forwards
Increase (decrease) in other income481  (64) 
(Decrease) increase in other income(Decrease) increase in other income(248) (15) 234  (79) 
Increase in other expenseIncrease in other expense—  —  Increase in other expense—  —  —  —  
Hedging foreign exchange forwardsHedging foreign exchange forwardsHedging foreign exchange forwards
Increase in other expense  
Increase (decrease) in other expenseIncrease (decrease) in other expense (1) 12   
The fair value of our derivatives is included in a table in Note 11, “Fair Values of Assets and Liabilities,” in the line items
“Other assets” and “Other liabilities.”
Note 13 Goodwill
FASB ASC Topic 350-20, “Intangibles – Goodwill and Other” requires an annual valuation of the fair value of a reporting unit that has goodwill and a comparison of the fair value to the book value of equity to determine whether the goodwill has been impaired. Goodwill is also required to be tested on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. When circumstances indicate that it is more likely than not that fair value is less than carrying value, a triggering event has occurred and a quantitative impairment test would be performed.
We consider First Commonwealth to be one reporting unit. The carrying amount of goodwill as both of March 31,June 30, 2020 and December 31, 2019 was $303.3 million. NaN impairment charges on goodwill or other intangible assets were incurred in 2020 or 2019.
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 a result of the COVID-19 pandemic and its impact on the Company's stock price as well as the potential impact on future earnings, Management evaluated whether a triggering event had occurred as of March 31,June 30, 2020. The evaluation concluded that it was more likely than not that First Commonwealth's fair value exceeded its book value and therefore there was no triggering event. 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.

35
41

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 Subordinated Debentures
Subordinated debentures outstanding are as follows:
 March 31, 2020December 31, 2019  June 30, 2020December 31, 2019
DueAmountRateAmountRate DueAmountRateAmountRate
 (dollars in thousands)  (dollars in thousands)
Owed to:Owed to:Owed to:
First Commonwealth BankFirst Commonwealth Bank2028$49,245  4.875% until June 1, 2023, then LIBOR + 1.845%$49,222  4.875% until June 1, 2023, then LIBOR + 1.845%First Commonwealth Bank2028$49,268  4.875% until June 1, 2023, then LIBOR + 1.845%$49,222  4.875% until June 1, 2023, then LIBOR + 1.845%
First Commonwealth BankFirst Commonwealth Bank203349,078  5.50% until June 1, 2028, then LIBOR + 2.37%49,061  5.50% until June 1, 2028, then LIBOR + 2.37%First Commonwealth Bank203349,096  5.50% until June 1, 2028, then LIBOR + 2.37%49,061  5.50% until June 1, 2028, then LIBOR + 2.37%
First Commonwealth Capital Trust IIFirst Commonwealth Capital Trust II203430,929  LIBOR + 2.85%30,929  LIBOR + 2.85%First Commonwealth Capital Trust II203430,929  LIBOR + 2.85%30,929  LIBOR + 2.85%
First Commonwealth Capital Trust IIIFirst Commonwealth Capital Trust III203441,238  LIBOR + 2.85%41,238  LIBOR + 2.85%First Commonwealth Capital Trust III203441,238  LIBOR + 2.85%41,238  LIBOR + 2.85%
TotalTotal$170,490  $170,450  Total$170,531  $170,450  
On May 21, 2018, First Commonwealth issued ten-year subordinated notes with an aggregate principal amount of $50.0 million and a fixed-to-floating rate of 4.875%. The rate remains fixed until June 1, 2023, then adjusts on a quarterly basis to LIBOR + 1.845%. The Bank may redeem the notes, beginning with the interest payment due on June 1, 2023, in whole or in part at a redemption price equal to 100% of the principal amount of the subordinated notes, plus accrued and unpaid interest to the date of redemption. Deferred issuance costs of $0.9 million are being amortized on a straight-line basis over the term of the notes.
On May 21, 2018, First Commonwealth issued fifteen-year subordinated notes with an aggregate principal amount of $50.0 million and a fixed-to-floating rate of 5.50%. The rate remains fixed until June 1, 2028, then adjusts on a quarterly basis to LIBOR + 2.37%. The Bank may redeem the notes, beginning with the interest payment due on June 1, 2028, in whole or in part at a redemption price equal to 100% of the principal amount of the subordinated notes, plus accrued and unpaid interest to the date of redemption. Deferred issuance costs of $1.1 million are being amortized on a straight-line basis over the term of the notes.
First Commonwealth currently has two trusts, First Commonwealth Capital Trust II and First Commonwealth Capital Trust III, of which 100% of the common equity is owned by First Commonwealth. The trusts were formed for the purpose of issuing company obligated mandatorily redeemable capital securities to third-party investors and investing the proceeds from the sale of the capital securities solely in junior subordinated debt securities (“subordinated debentures”) of First Commonwealth. The subordinated debentures held by each trust are the sole assets of the trust.
Interest on the debentures issued to First Commonwealth Capital Trust III is paid quarterly at a floating rate of 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 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.
Note 15 Revenue Recognition

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

3642

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

The Company also evaluated whether it has any significant contract balances. A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration resulting in a contract receivable or before payment is due resulting in a contract asset. A contract liability balance is an entity’s obligation to transfer a service to a customer for which the Company has already received payment from the customer. First Commonwealth’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as trust income which is based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of March 31,June 30, 2020 and December 31, 2019, the Company did not have any significant contract balances.

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

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

Trust Income

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

Service Charges on Deposit Accounts

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

3743

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Insurance and Retail Brokerage Commissions

Insurance income primarily consists of commissions received from execution of personal, business and health insurance policies when acting as an agent on behalf of insurance carriers. The Company’s performance obligation is generally satisfied upon the issuance of the insurance policy. Because the Company’s contracts with the insurance carriers are generally cancellable by either party, with minimal notice, insurance commissions are recognized during the policy period as received. Also, the majority of insurance commissions are received on a monthly basis during the policy period; however, some carriers pay the full annual commission to First Commonwealth at the time of policy issuance or renewal. In these cases, First Commonwealth would be required to refund any commissions it would not be entitled to as a result of cancelled or terminated policies. The Company has established a refund liability for the remaining term of the policies expected to be cancelled. The Company also receives incentive-based contingency fees from the insurance carriers. Contingency fee revenue, which totals approximately $0.3 million per year, is recognized as received due to the immaterial amount.
Retail brokerage income primarily consists of commissions received on annuity and investment product sales through a third-party service provider. The Company’s performance obligation is generally satisfied upon the issuance of the annuity policy or the execution of an investment transaction. The Company does not earn a significant amount of trailer fees on annuity sales. However, after considering the factors impacting these trailer fees, such as the uncertainty of investor behavior and changes in the market value of assets, First Commonwealth determined that it would recognize trailing fees as received because it could not reasonably estimate an amount of future trailing commissions for which collection is probable. Commissions from the third-party service provider are received on a monthly basis based upon customer activity for the month. The fees are recognized monthly with a receivable until commissions are received from the third-party service provider the following month. Because the Company acts as an agent in arranging the relationship between the customer and the third-party service provider and does not control the services rendered to the customers, retail brokerage fees are presented net of related costs, including $0.8$1.4 million and $0.7$1.6 million in commission expense as of March 31,June 30, 2020 and 2019, respectively.

Card Related Interchange Income

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

Other Income

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

Gains(losses) on sales of OREO

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

3844

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606:
 For the Three Months Ended March 31,
 20202019
 (dollars in thousands)
Noninterest Income
In-scope of Topic 606:
Trust income$2,111  $1,926  
Service charges on deposit accounts4,745  4,245  
Insurance and retail brokerage commissions1,995  1,961  
Card-related interchange income5,262  4,730  
Gain on sale of other loans and assets159  258  
Other income944  862  
Noninterest Income (in-scope of Topic 606)15,216  13,982  
Noninterest Income (out-of-scope of Topic 606)4,057  4,890  
Total Noninterest Income$19,273  $18,872  

 For the Three Months Ended June 30,For the Six Months Ended June 30,
 2020201920202019
 (dollars in thousands)
Noninterest Income
In-scope of Topic 606:
Trust income$2,109  $1,970  $4,220  $3,896  
Service charges on deposit accounts3,286  4,593  8,031  8,838  
Insurance and retail brokerage commissions1,831  2,014  3,826  3,975  
Card-related interchange income5,886  5,441  11,148  10,171  
Gain on sale of other loans and assets173  422  332  680  
Other income824  990  1,768  1,853  
Noninterest Income (in-scope of Topic 606)14,109  15,430  29,325  29,413  
Noninterest Income (out-of-scope of Topic 606)7,703  6,476  11,760  11,365  
Total Noninterest Income$21,812  $21,906  $41,085  $40,778  
Note 16 Subsequent Event
Branch Consolidation
On March 27,July 28, 2020, the CARES Act was signed into lawCompany announced a profitability initiative termed "Project THRIVE" with a goal of growing our business, maintaining adequate capital, protecting against further NIM compression and authorized the Small Business Administration ("SBA") to guarantee loans under the Paycheck Protection Program (“PPP”) for small businesses who meet the necessary eligibility requirements. PPP loans are forgivable, in whole or inreducing operating expenses. As part if the proceeds are used for payroll and other permitted purposes in accordance with the requirementsof this initiative, 20% of the PPP. These loans carry a fixed rateCompany's retail locations will be consolidated into nearby offices prior to December 31, 2020. It is expected that this consolidation will result in approximately $3.5 million in consolidation-related costs to occur primarily in the third quarter of 1.00% and a term2020.
Voluntary Retirement Program
On August 4, 2020, the Board of two years, if not forgiven, in whole or in part. Payments are deferred for the first six monthsDirectors of the loan. The loans are 100% guaranteed by the SBA and the SBA pays the originating bankCompany approved a processing fee ranging from 1% to 5%, based on the sizeVoluntary Retirement Program (“VRP”) as part of the loan. From April 3, 2020, the date the SBA began accepting applications, the Company has secured authorization from the SBA to fund 4,600 PPP loans totaling approximately $600 million.Although the Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance withinitiative “Project THRIVE”. Under the terms of the program, there could be risksVRP, an eligible employee of the Company or its affiliates who will reach age 60 or above as of December 31, 2020 may elect to voluntarily terminate his or her employment and liabilityreceive a severance benefit based upon years of service with the Company, subject to the Company associated withterms and conditions of the VRP, including acceptance of such employee’s participation by the Company. As of July 31, 2020, 193 employees were potentially eligible to participate in the VRP. If all eligible employees were to elect and be accepted for participation in the programVRP, the total expense of the VRP would be approximately $7.0 million. The actual cost of the VRP, and the amount of expense savings that cannotthe Company will realize, will depend upon the level of participation and the compensation and years of service of those employees who participate in the VRP, and the pace and salary levels at which employees may be determined at this timehired to replace VRP participants. The Company expects to determine the number of VRP participants and recognize the estimated initial expense of the VRP during the quarter ended September 30, 2020.

.


3945

Table of Contents


ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
This discussion and the related financial data are presented to assist in the understanding and evaluation of the consolidated financial condition and the results of operations of First Commonwealth Financial Corporation including its subsidiaries (“First Commonwealth”) for the three and six months ended March 31,June 30, 2020 and 2019, and should be read in conjunction with the unaudited Consolidated Financial Statements and notes thereto included in this Form 10-Q.
Forward-Looking Statements
Certain statements contained in this report that are not historical facts may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, 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” as well. These statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of words such as “may,” “will,” “should,” “could,” “would,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “estimate” or words of similar meaning. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including uncertainties regarding the impact of the COVID-19 pandemic, and could be affected by many factors, including, but not limited to: (1) the length and extent of the economic contraction as a result of the COVID-19 pandemic and the impact of such contraction on First Commonwealth and its customers; (2) volatility and disruption in national and international financial markets; (3) the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board; (4) inflation, interest rate, commodity price, securities market and monetary fluctuations; (5) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which First Commonwealth or its customers must comply; (6) the soundness of other financial institutions; (7) political instability; (8) impairment of First Commonwealth’s goodwill or other intangible assets; (9) acts of God or of war or terrorism; (10) the timely development and acceptance of new products and services and perceived overall value of these products and services by users; (11) changes in consumer spending, borrowings and savings habits; (12) changes in the financial performance and/or condition of First Commonwealth’s borrowers; (13) technological changes; (14) acquisitions and integration of acquired businesses; (15) First Commonwealth’s ability to attract and retain qualified employees; (16) changes in the competitive environment in First Commonwealth’s markets and among banking organizations and other financial service providers; (17) the ability to increase market share and control expenses; (18) 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; (19) the reliability of First Commonwealth’s vendors, internal control systems or information systems; (20) 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; and (21) other risks and uncertainties described in this report and in the other reports that we file with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K. Further, statements about the potential effects of the COVID-19 pandemic on our business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable, and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, clients, third parties and us.
In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements in this report. We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Explanation of Use of Non-GAAP Financial Measure
In addition to the results of operations presented in accordance with generally accepted accounting principles (“GAAP”), First Commonwealth management uses, and this quarterly report contains or references, certain non-GAAP financial measures, such as net interest income on a fully taxable equivalent basis. We believe these non-GAAP financial measures provide information that is useful to investors in understanding our underlying operational performance and our business and performance trends as
4046

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


they facilitate comparison with the performance of others in the financial services industry. Although we believe that these non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.
We believe the presentation of net interest income on a fully taxable equivalent basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Interest income per the unaudited Consolidated Statements of Income is reconciled to net interest income adjusted to a fully taxable equivalent basis on page 4350 and page 57 for the six and three months ended March 31,June 30, 2020 and 2019, respectively.
4147

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES



Selected Financial Data
The following selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, which follows, and with the unaudited Consolidated Financial Statements and related notes. 
For the Three Months Ended March 31,For the Three Months Ended June 30,For the Six Months Ended June 30,
202020192020201920202019
(dollars in thousands, except per share data)(dollars in thousands, except per share data)
Net IncomeNet Income$4,727  $24,589  Net Income$23,851  $27,280  $28,578  $51,869  
Per Share Data:Per Share Data:Per Share Data:
Basic Earnings per Share Basic Earnings per Share  $0.05  $0.25  Basic Earnings per Share$0.24  $0.28  $0.29  $0.53  
Diluted Earnings per Share Diluted Earnings per Share  0.05  0.25  Diluted Earnings per Share0.24  0.28  0.29  0.53  
Cash Dividends Declared per Common ShareCash Dividends Declared per Common Share0.11  0.10  Cash Dividends Declared per Common Share0.11  0.10  0.22  0.20  
Average Balance:Average Balance:Average Balance:
Total assetsTotal assets$8,337,321  $7,878,908  Total assets$9,043,554  $7,986,474  $8,690,437  $7,932,988  
Total equityTotal equity1,071,318  986,836  Total equity1,071,549  1,009,424  1,071,433  998,192  
End of Period Balance:End of Period Balance:End of Period Balance:
Net loans (1)
Net loans (1)
$6,260,652  $5,831,044  
Net loans (1)
$6,871,043  $5,968,034  
Total assetsTotal assets8,515,105  7,972,673  Total assets9,364,655  8,070,854  
Total depositsTotal deposits6,923,088  6,130,760  Total deposits7,782,201  6,155,965  
Total equityTotal equity1,057,924  998,019  Total equity1,075,705  1,021,831  
Key Ratios:Key Ratios:Key Ratios:
Return on average assetsReturn on average assets0.23 %1.27 %Return on average assets1.06 %1.37 %0.66 %1.32 %
Return on average equityReturn on average equity1.77 %10.11 %Return on average equity8.95 %10.84 %5.36 %10.48 %
Dividends payout ratioDividends payout ratio220.00 %40.00 %Dividends payout ratio45.83 %35.71 %75.86 %37.74 %
Average equity to average assets ratioAverage equity to average assets ratio12.85 %12.53 %Average equity to average assets ratio11.85 %12.64 %12.33 %12.58 %
Net interest marginNet interest margin3.65 %3.75 %Net interest margin3.29 %3.75 %3.46 %3.75 %
Net loans to deposits ratioNet loans to deposits ratio90.43 %95.11 %Net loans to deposits ratio88.29 %96.95 %
(1) Includes loans held for sale.

Results of Operations
ThreeSix Months Ended March 31,June 30, 2020 Compared to ThreeSix Months Ended March 31,June 30, 2019
Net Income
For the threesix months ended March 31,June 30, 2020, First Commonwealth had net income of $4.7$28.6 million, or $0.05$0.29 diluted earnings per share, compared to net income of $24.6$51.9 million, or $0.25$0.53 diluted earnings per share, in the threesix months ended March 31,June 30, 2019. The decline in net income was primarily the result of $31.0$37.8 million provision for credit losses recognized in order to provide for estimated probable losses related to the COVID-19 pandemic. This was partially offset by a $4.9$6.6 million decrease in the income tax provision due to lower income before income taxes.
For the threesix months ended March 31,June 30, 2020, the Company’s return on average equity was 1.77%5.36% and its return on average assets was 0.23%0.66%, compared to 10.11%10.48% and 1.27%1.32%, respectively, for the threesix months ended March 31,June 30, 2019.
Net Interest Income
Net interest income, on a fully taxable equivalent basis, was $68.1$135.2 million in the first threesix months of 2020, compared to $65.9$133.5 million for the same period in 2019. This increase was due to both growth in average interest-earning assets of $383.5$672.4 million offset by a 1029 basis point decrease in the net interest margin, on a fully taxable equivalent basis. Net interest income comprises the majority of our operating revenue (net interest income before provision expense plus noninterest income), at 77.8%76.6% and 77.6%76.5% for the threesix months ended March 31,June 30, 2020 and 2019, respectively.
4248

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


The net interest margin, on a fully taxable equivalent basis, was 3.65%3.46% and 3.75% for the threesix months ended March 31,June 30, 2020 and March 31,June 30, 2019, respectively. The decline in the net interest margin is primarily attributable to both changes in the level of interest rates andpartially offset by the amount and composition of interest-earning assets and interest-bearing liabilities.
 
The taxable equivalent yield on interest-earning assets was 4.27%3.97% for the threesix months ended March 31,June 30, 2020, a decrease of 2860 basis points compared to the 4.55%4.57% yield for the same period in 2019. This decrease is largely due to loan portfolio yield, which decreased by 3162 basis points when compared to the threesix months ended March 31,June 30, 2019. Contributing to this decrease was the yield on our adjustable and variable rate commercial loan portfolio, which declined 6488 basis points largely due to the Federal Reserve decreasing short-term interest rates. During the first quarter of 2020, the Federal Reserve decreased the Federal Funds target rate by 150 basis points in addition to the 75 basis point rate decreases made during 2019. Although the impact of the 2020 rate decreases are not fully reflected in the comparison of the periods presented, such decreases in rates have the effect of lowering yields on variable and adjustable rate loans, as well as, to a lesser extent, the cost of interest-bearing liabilities, and any additional rate decreases would be expected to have a similar effect.

The loan yield for the six months ended June 30, 2020, was impacted by $570.9 million in Paycheck Protection Program ("PPP") loans originated under the CARES Act which have a stated loan rate of 1% and a yield of 2.7%. The yield on PPP loans includes the recognition of PPP loan deferred processing fees, net of deferred origination costs, of $1.7 million. These amounts are recognized in interest income as a yield adjustment over the life of the loan. As of June 30, 2020, we expect to recognize additional PPP related deferred processing fees, net of origination costs, of approximately $17.1 million as an adjustment to yield over the remaining terms of the loans. PPP loans increased the average balance of loans by $202.9 million during the six months ended June 30, 2020 decreasing the yield on loans by 5 basis points and the net interest margin by 2 basis points.

The investment portfolio yield decreased 3945 basis points in comparison to the prior year primarily due the decrease in the Federal Reserve short-term rates. Investment portfolio purchases during the threesix months ended March 31,June 30, 2020 have been primarily in obligations of U.S. government agencies and obligations of other government-sponsored enterprises with durations of approximately 4 to 6 years.
The cost of interest-bearing liabilities decreased to 0.85%0.72% for the threesix months ended March 31,June 30, 2020, from 1.07%1.09% for the same period in 2019, primarily due to a decrease in the cost of short-term borrowings and the cost of long-term debt as well as the cost of interest-bearing deposits. DepositsDeposit growth during the second quarter of 2020 due to the retention of PPP loan proceeds and the deposit of Federal stimulus checks, as well as deposits acquired in our recent acquisitions, along with organic growth in consumer checking and savings deposits, contributedthird quarter 2019 acquisition of Santander branches, combined to contribute to a decline in average short-term borrowings of $412.8$417.0 million for the threesix months ended March 31,June 30, 2020 compared to the same period in 2019. Decreases in the Federal Funds target rate impacted the cost of long-term debt, decreasing the cost by 81 basis points. Lower market interest rates and managements efforts to reduce deposit costs resulted in the cost of interest-bearing deposits decreasing 1736 basis points and short-term borrowings decreasing 110146 basis points in comparison to the same period last year.
For the threesix months ended March 31,June 30, 2020, changes in interest rates negatively impacted net interest income by $3.9$17.9 million when compared with the same period in 2019. The lower yield on interest-earning assets negatively impacted net interest income by $5.3$24.6 million, while the decrease in the cost of interest-bearing liabilities positively impacted net interest income by $1.4$6.7 million.
Changes in the volume of interest-earning assets and interest-bearing liabilities positively impacted net interest income by $6.1$19.6 million for the threesix months ended March 31,June 30, 2020, as compared to the same period in 2019. Higher levels of interest-earning assets resulted in an increase of $5.0$17.1 million in interest income, and changes in the volume of interest-bearing liabilities decreased interest expense by $1.1$2.5 million, primarily due to a decrease in short-term borrowings. Average earning assets for the threesix months ended March 31,June 30, 2020 increased $383.5$672.4 million, or 5.4%9.4%, compared to the same period in 2019. Average loans for the comparable period increased $444.2$636.0 million, or 7.6%10.8%.
Net interest income also benefited from a $249.2$456.1 million increase in average net free funds at March 31,June 30, 2020 as compared to March 31,June 30, 2019. Average net free funds are the excess of noninterest-bearing demand deposits, other noninterest-bearing liabilities and shareholders’ equity over noninterest-earning assets. The largest component of the increase in net free funds was an increase of $211.6$422.5 million, or 14.4%28.5%, in noninterest-bearing demand deposit average balances, of whichprimarily due to deposit growth related to PPP loan proceeds as well as $86.6 million can bein deposits attributed to the Santander branch acquisition completed in the third quarter of 2019. Average time deposits for the threesix months ended March 31,June 30, 2020 decreased by $40.0$66.9 million compared to the comparable period in 2019, while the average rate paid on time deposits increased 8decreased 6 basis points compared to the comparablesame period in 2019. Decreases in market interest rates positively impacted interest expense by $1.4$6.7 million and changes in the mix of interest-bearing liabilities had a $1.1$2.5 million positive impact.
49

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


 
The following table reconciles interest income in the Consolidated Statements of Income to net interest income adjusted to a fully taxable equivalent basis for the threesix months ended March 31:June 30:
 
2020201920202019
(dollars in thousands) (dollars in thousands)
Interest income per Consolidated Statements of IncomeInterest income per Consolidated Statements of Income$79,329  $79,594  Interest income per Consolidated Statements of Income$154,310  $161,651  
Adjustment to fully taxable equivalent basisAdjustment to fully taxable equivalent basis397  457  Adjustment to fully taxable equivalent basis755  912  
Interest income adjusted to fully taxable equivalent basis (non-GAAP)Interest income adjusted to fully taxable equivalent basis (non-GAAP)79,726  80,051  Interest income adjusted to fully taxable equivalent basis (non-GAAP)155,065  162,563  
Interest expenseInterest expense11,605  14,108  Interest expense19,900  29,039  
Net interest income adjusted to fully taxable equivalent basis (non-GAAP)Net interest income adjusted to fully taxable equivalent basis (non-GAAP)$68,121  $65,943  Net interest income adjusted to fully taxable equivalent basis (non-GAAP)$135,165  $133,524  


4350

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


The following is an analysis of the average balance sheets and net interest income on a fully taxable equivalent basis for the threesix months ended March 31:June 30:
 
20202019 20202019
Average
Balance
Income /
Expense (a)
Yield
or
Rate
Average
Balance
Income /
Expense (a)
Yield
or
Rate
Average
Balance
Income /
Expense (a)
Yield
or
Rate
Average
Balance
Income /
Expense (a)
Yield
or
Rate
(dollars in thousands) (dollars in thousands)
AssetsAssetsAssets
Interest-earning assets:Interest-earning assets:Interest-earning assets:
Interest-bearing deposits with banksInterest-bearing deposits with banks$7,327  $37  2.03 %$4,700  $54  4.66 %Interest-bearing deposits with banks$86,804  $69  0.16 %$3,829  $100  5.27 %
Tax-free investment securitiesTax-free investment securities51,729  399  3.10  68,226  529  3.14  Tax-free investment securities47,950  737  3.09  68,020  1,055  3.13  
Taxable investment securitiesTaxable investment securities1,196,643  7,237  2.43  1,243,519  8,701  2.84  Taxable investment securities1,199,233  13,843  2.32  1,225,787  16,908  2.78  
Loans, net of unearned income (b)(c)(e)Loans, net of unearned income (b)(c)(e)6,255,825  72,053  4.63  5,811,587  70,767  4.94  Loans, net of unearned income (b)(c)(e)6,516,854  140,416  4.33  5,880,840  144,500  4.95  
Total interest-earning assetsTotal interest-earning assets7,511,524  79,726  4.27  7,128,032  80,051  4.55  Total interest-earning assets7,850,841  155,065  3.97  7,178,476  162,563  4.57  
Noninterest-earning assets:Noninterest-earning assets:Noninterest-earning assets:
CashCash100,034  93,120  Cash97,129  91,059  
Allowance for credit lossesAllowance for credit losses(52,693) (49,472) Allowance for credit losses(66,705) (50,480) 
Other assetsOther assets778,456  707,228  Other assets809,172  713,933  
Total noninterest-earning assetsTotal noninterest-earning assets825,797  750,876  Total noninterest-earning assets839,596  754,512  
Total AssetsTotal Assets$8,337,321  $7,878,908  Total Assets$8,690,437  $7,932,988  
Liabilities and Shareholders’ EquityLiabilities and Shareholders’ EquityLiabilities and Shareholders’ Equity
Interest-bearing liabilities:Interest-bearing liabilities:Interest-bearing liabilities:
Interest-bearing demand deposits (d)Interest-bearing demand deposits (d)$1,358,206  $1,215  0.36 %$1,186,907  $1,565  0.53 %Interest-bearing demand deposits (d)$1,465,901  $1,469  0.20 %$1,228,751  $3,418  0.56 %
Savings deposits (d)Savings deposits (d)2,857,117  3,847  0.54  2,490,480  3,265  0.53  Savings deposits (d)2,925,862  6,354  0.44  2,498,726  6,957  0.56  
Time depositsTime deposits825,966  3,387  1.65  865,944  3,345  1.57  Time deposits801,429  6,312  1.58  868,286  7,077  1.64  
Short-term borrowingsShort-term borrowings202,314  588  1.17  615,140  3,438  2.27  Short-term borrowings157,188  635  0.81  574,203  6,455  2.27  
Long-term debtLong-term debt234,050  2,568  4.41  184,931  2,495  5.47  Long-term debt233,934  5,130  4.41  198,081  5,132  5.22  
Total interest-bearing liabilitiesTotal interest-bearing liabilities5,477,653  11,605  0.85  5,343,402  14,108  1.07  Total interest-bearing liabilities5,584,314  19,900  0.72  5,368,047  29,039  1.09  
Noninterest-bearing liabilities and shareholders’ equity:Noninterest-bearing liabilities and shareholders’ equity:Noninterest-bearing liabilities and shareholders’ equity:
Noninterest-bearing demand deposits (d)Noninterest-bearing demand deposits (d)1,676,362  1,464,750  Noninterest-bearing demand deposits (d)1,903,568  1,481,064  
Other liabilitiesOther liabilities111,988  83,920  Other liabilities131,122  85,685  
Shareholders’ equityShareholders’ equity1,071,318  986,836  Shareholders’ equity1,071,433  998,192  
Total Noninterest-Bearing Funding SourcesTotal Noninterest-Bearing Funding Sources2,859,668  2,535,506  Total Noninterest-Bearing Funding Sources3,106,123  2,564,941  
Total Liabilities and Shareholders’ EquityTotal Liabilities and Shareholders’ Equity$8,337,321  $7,878,908  Total Liabilities and Shareholders’ Equity$8,690,437  $7,932,988  
Net Interest Income and Net Yield on Interest-Earning AssetsNet Interest Income and Net Yield on Interest-Earning Assets$68,121  3.65 %$65,943  3.75 %Net Interest Income and Net Yield on Interest-Earning Assets$135,165  3.46 %$133,524  3.75 %
(a)Income on interest-earning assets has been computed on a fully taxable equivalent basis using the 21% federal income tax statutory rate for the threesix months ended March 31,June 30, 2020 and 2019.
(b)Loan balances include held for sale and nonaccrual loans. Income on nonaccrual loans is accounted for on the cash basis.
(c)Loan income includes loan fees earned.
(d)Average balances do not include reallocations from noninterest-bearing demand deposits and interest-bearing demand deposits into savings deposits, which were made for regulatory purposes.
(e)Includes held for sale loans.

 
4451

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


The following table shows the effect of changes in volumes and rates on interest income and interest expense for the six months ended June 30, 2020 compared with June 30, 2019:
 Analysis of Year-to-Year Changes in Net Interest Income
 Total
Change
Change Due To
Volume
Change Due To
Rate (a)
 (dollars in thousands)
Interest-earning assets:
Interest-bearing deposits with banks$(31) $2,168  $(2,199) 
Tax-free investment securities(318) (312) (6) 
Taxable investment securities(3,065) (366) (2,699) 
Loans(4,084) 15,612  (19,696) 
Total interest income (b)(7,498) 17,102  (24,600) 
Interest-bearing liabilities:
Interest-bearing demand deposits(1,949) 659  (2,608) 
Savings deposits(603) 1,186  (1,789) 
Time deposits(765) (544) (221) 
Short-term borrowings(5,820) (4,694) (1,126) 
Long-term debt(2) 928  (930) 
Total interest expense(9,139) (2,465) (6,674) 
Net interest income$1,641  $19,567  $(17,926) 
(a)Changes in interest income or expense not arising solely as a result of volume or rate variances are allocated to rate variances.
(b)Changes in interest income have been computed on a fully taxable equivalent basis using the 21% federal income tax statutory rate.

Provision for Credit Losses
The provision for credit losses is determined based on management’s estimates of the appropriate level of the allowance for credit losses needed for probable losses inherent in the loan portfolio, after giving consideration to charge-offs and recoveries for the period. The provision for credit losses is an amount added to the allowance, against which credit losses are charged.
The table below provides a breakout of the provision for credit losses by loan category for the six months ended June 30:
 20202019
 DollarsPercentageDollarsPercentage
 (dollars in thousands)
Commercial, financial, agricultural and other$6,549  17 %$2,542  37 %
Real estate construction654   405   
Residential real estate5,650  15  250   
Commercial real estate17,091  45  1,146  16  
Loans to individuals7,882  21  2,587  37  
Total$37,826  100 %$6,930  100 %
The provision for credit losses for the six months ended June 30, 2020 increased in comparison to the six months ended June 30, 2019 by $30.9 million. The level of provision expense in the first six months of 2020 is primarily to build up the allowance for loan loss in order to provide for estimated credit risks related to the COVID-19 pandemic. Contributing to the higher provision in six months ended June 30, 2020 was $5.9 million in specific reserves related to loans for four commercial real estate borrowers that were placed on nonaccrual status during the first six months of 2020. Additionally, $22.3 million of the provision expense is attributable to higher qualitative reserves due to the uncertain economic environment, additional risks related to the large volume of consumer forbearances as of June 30, 2020 and consideration of the estimated probable losses incurred in certain loan categories that may be affected by COVID-19, such as hospitality and retail. Net charge-offs during the first six months of 2020 totaled $8.0 million.
The level of provision expense in the first six months of 2019 was primarily a result of $3.6 million in net charge-offs, a $0.9 million increase in specific reserves and growth in the loan portfolio.
52

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


The allowance for credit losses was $81.4 million, or 1.18%, of total loans outstanding and 1.25% of total originated loans outstanding at June 30, 2020, compared to $51.6 million, or 0.83%, and 0.90%, respectively, at December 31, 2019 and $51.1 million, or 0.85%, and 0.92%, respectively, at June 30, 2019. Nonperforming loans as a percentage of total loans increased to 0.81% at June 30, 2020 from 0.52% at December 31, 2019 and 0.59% as of June 30, 2019. The allowance to nonperforming loan ratio was 145.37%, 160.28% and 143.62% as of June 30, 2020, December 31, 2019 and June 30, 2019, respectively.
Below is an analysis of the consolidated allowance for credit losses for the six months ended June 30, 2020 and 2019 and the year-ended December 31, 2019:
June 30, 2020June 30, 2019December 31, 2019
 (dollars in thousands)
Balance, beginning of period$51,637  $47,764  $47,764  
Loans charged off:
Commercial, financial, agricultural and other1,771  1,394  3,393  
Real estate construction—  —  —  
Residential real estate650  280  1,042  
Commercial real estate2,417  299  2,008  
Loans to individuals4,016  2,484  5,831  
Total loans charged off8,854  4,457  12,274  
Recoveries of loans previously charged off:
Commercial, financial, agricultural and other132  171  326  
Real estate construction26  84  158  
Residential real estate146  219  315  
Commercial real estate44  79  189  
Loans to individuals484  271  626  
Total recoveries832  824  1,614  
Net credit losses8,022  3,633  10,660  
Provision charged to expense37,826  6,930  14,533  
Balance, end of period$81,441  $51,061  $51,637  

Noninterest Income
The following table presents the components of noninterest income for the six months ended June 30:
20202019$ Change% Change
 (dollars in thousands)
Noninterest Income:
Trust income$4,220  $3,896  $324  %
Service charges on deposit accounts8,031  8,838  (807) (9) 
Insurance and retail brokerage commissions3,826  3,975  (149) (4) 
Income from bank owned life insurance3,416  2,868  548  19  
Card-related interchange income11,148  10,171  977  10  
Swap fee income823  1,213  (390) (32) 
Other income3,487  3,491  (4) —  
Subtotal34,951  34,452  499   
Net securities gains27   21  350  
Gain on sale of mortgage loans6,789  3,502  3,287  94  
Gain on sale of other loans and assets1,280  2,861  (1,581) (55) 
Derivatives mark to market(1,962) (43) (1,919) 4,463  
Total noninterest income$41,085  $40,778  $307  %
53

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


Total noninterest income, excluding net securities gains, gain on sale of mortgage loans, gain on sale of other loans and assets and derivatives mark to market for the six months ended June 30, 2020 increased $0.5 million, or 1%, compared to the six months ended June 30, 2019. Card-related interchange income increased $1.0 million due to growth in customer accounts and transactions, including $0.9 million attributable to accounts acquired in the Santander branch acquisition in the third quarter of 2019. Service charges on deposit accounts decreased $0.8 million, despite a $0.5 million increase attributable to the Santander branch acquisition. The lower level of service charge on deposit accounts is a result of customers maintaining higher deposit balances due to CARES Act stimulus and lower consumer spending during the second quarter of 2020.
Total noninterest income increased $0.3 million, or 1%, compared to the same period in the prior year. The most significant changes, other than the changes noted above, include a $3.3 million increase in gain on sale of mortgage loans as a result of growth in our mortgage lending area. The mark to market adjustment on interest rate swaps entered into for our commercial customers resulted in a decrease of $1.9 million in noninterest income compared to the prior year period. This adjustment does not reflect a realized loss on the swaps, but rather relates to change in fair value due to movements in corporate bond spreads and swap rates. The gain on sale of other loans and assets decreased $1.6 million due to a lower volume of loans being sold in the first six months of 2020 compared to the same period in 2019.
Noninterest Expense
The following table presents the components of noninterest expense for the six months ended June 30:
20202019$ Change% Change
 (dollars in thousands)
Noninterest Expense:
Salaries and employee benefits$58,750  $54,531  $4,219  %
Net occupancy9,370  9,357  13  —  
Furniture and equipment7,435  7,492  (57) (1) 
Data processing5,063  5,163  (100) (2) 
Advertising and promotion2,685  2,471  214   
Pennsylvania shares tax1,992  2,176  (184) (8) 
Intangible amortization1,853  1,499  354  24  
Collection and repossession905  1,007  (102) (10) 
Other professional fees and services1,818  1,786  32   
FDIC insurance761  1,129  (368) (33) 
Unfunded commitment reserve(1,652) 231  (1,883) (815) 
Other operating12,543  12,915  (372) (3) 
Subtotal101,523  99,757  1,766   
Loss on sale or write-down of assets353  1,246  (893) (72) 
COVID-19 related442  —  442  N/A
Litigation and operational losses709  956  (247) (26) 
Total noninterest expense$103,027  $101,959  $1,068  %

Noninterest expense increased $1.1 million, or 1%, for the six months ended June 30, 2020 compared to the same period in 2019. Contributing to the higher expenses in 2020 is a $4.2 million increase in salaries and employee benefits as a result of a higher number of full-time equivalent employees, annual merit increases and a $1.6 million increase in hospitalization expense. The higher number of employees is primarily a result of the acquisition of 14 branches from Santander in September 2019 and continued expansion of our mortgage and commercial banking businesses. The Santander acquisition accounted for $1.8 million of the salaries and employee benefits increase. Partially offsetting these increases in salaries and employee benefit expense was the deferral of $0.6 million in salary and benefit costs related to the origination of approximately 4,900 PPP loans during the second quarter of 2020. Offsetting the increase in salaries and employee benefits was a $1.9 million decrease in unfunded commitment expense. This decrease is a result of updates made in the first quarter of 2020 to the probability of default and loss given default information incorporated into the calculation. FDIC insurance decreased $0.4 million in comparison to the prior period due to a $0.7 million assessment credit received as a result of the FDIC deposit insurance fund reaching the required minimum reserve ratio. Loss on sale or write-down of assets decreased $0.9 million due to a $0.5 million write-down on an OREO property in the first six months of 2019 with no similar activity in the current year.
54

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


Income Tax
The provision for income taxes decreased $6.6 million, or 52.0%, for the six months ended June 30, 2020, compared to the corresponding period in 2019.  The effective tax rate decreased 210 basis points, or 10.7%, primarily due to a $29.9 million decrease in income before income taxes offset by a $0.5 million increase in tax-free income from bank owned life insurance.
We applied the “annual effective tax rate approach” to determine the provision for income taxes, which applies an annual forecast of tax expense as a percentage of expected full year income, for the six months ended June 30, 2020 and 2019.
We generate an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest, income from bank owned life insurance and tax benefits associated with low income housing tax credits, all of which are relatively consistent regardless of the level of pretax income. These provided for an annual effective tax rate of 17.5% and 19.6% for the six months ended June 30, 2020 and 2019, respectively.
As of June 30, 2020, our deferred tax assets totaled $16.0 million. Based on our evaluation, we determined that it is more likely than not that all of these assets will be realized. As a result, a valuation allowance against these assets was not recorded. In evaluating the need for a valuation allowance, we estimate future taxable income based on management approved forecasts, evaluation of historical earning levels and consideration of potential tax strategies. If future events differ from our current forecasts, we may need to establish a valuation allowance, which could have a material impact on our financial condition and results of operations.
Results of Operations
Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019
Net Income
For the three months ended June 30, 2020, First Commonwealth had net income of $23.9 million, or $0.24 diluted earnings per share, compared to net income of $27.3 million, or $0.28 diluted earnings per share, in the three months ended June 30, 2019. The decrease in net income was primarily the result of a $4.0 million increase in the provision for credit losses.
For the three months ended June 30, 2020, the Company’s return on average equity was 8.95% and its return on average assets was 1.06%, compared to 10.84% and 1.37%, respectively, for the three months ended June 30, 2019.
Net Interest Income
Net interest income, on a fully taxable equivalent basis, was $67.0 million in the second quarter of 2020, compared to $67.6 million for the same period in 2019. This decrease was due to both growth in average interest earning assets of $961.8 million and a 46 basis points decrease in the net interest margin. Net interest income comprises the majority of our operating revenue (net interest income before provision expense plus noninterest income), at 75.4% for both the three months ended June 30, 2020 and 2019.
The net interest margin, on a fully taxable equivalent basis, was 3.29% and 3.75% for the three months ended June 30, 2020 and June 30, 2019, respectively. The decrease in the net interest margin is attributable to both changes in the level of interest rates and the amount and composition of interest-earning assets and interest-bearing liabilities.
The taxable equivalent yield on interest-earning assets was 3.70% for the three months ended June 30, 2020, a decrease of 88 basis points compared to the 4.58% yield for the same period in 2019. This is largely due to a decrease in the loan portfolio yield, which declined by 91 basis points when compared to the three months ended June 30, 2019. Contributing to this was a decrease in the Federal Funds target rate of 225 basis points in comparison to June 30, 2019.  While not fully reflected in the comparison of the periods presented, such decreases in rates have the effect of lowering yields on variable and adjustable rate loans, as well as, to a lesser extent, the cost of interest-bearing liabilities, and any additional rate decreases would be expected to have a similar effect. The yield on the investment portfolio decreased 50 basis points in comparison to the prior year. Also impacting the yield on loans was PPP loans originated under the CARES Act which have a stated rate of 1% and a yield of 2.7%. These loans increased the average balance of loans by $405.7 million for the second quarter of 2020 causing an 8 basis point decrease in the yield on loans and a 2 basis point decrease in the net interest margin. Investment portfolio purchases during the three months ended June 30, 2020 included only one $200 thousand debt security with a duration of approximately five years.
The cost of interest-bearing liabilities decreased to 0.59% for the three months ended June 30, 2020, from 1.11% for the same period in 2019, primarily due to a decrease in the cost of short-term borrowings and the cost of interest bearing deposits. Deposits acquired from the 3rd quarter 2019 acquisition of Santander branches as well as the portion of PPP loan proceeds still
55

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


remaining in customers deposit accounts contributed to a decline in average short-term borrowings of $421.7 million for the three months ended June 30, 2020 compared to the same period in 2019. Lower market interest rates resulted in the cost of interest-bearing deposits decreasing 53 basis points and short-term borrowings decreasing 210 basis points in comparison to the same period last year. Decreases in short term interest rates impacted the cost of long-term debt, decreasing the cost by 60 basis points.
For the three months ended June 30, 2020, changes in interest rates negatively impacted net interest income by $14.5 million when compared with the same period in 2019. The lower yield on interest-earning assets negatively impacted net interest income by $19.7 million, while the decrease in the cost of interest-bearing liabilities positively impacted net interest income by $5.3 million.
Changes in the volume of interest-earning assets and interest-bearing liabilities positively impacted net interest income by $13.9 million in the three months ended June 30, 2020, as compared to the same period in 2019. Higher levels of interest-earning assets resulted in an increase of $12.6 million in interest income while changes in the volume of interest-bearing liabilities had a minimal impact on interest expense. Average earning assets for the three months ended June 30, 2020 increased $961.8 million, or 13.3%, compared to the same period in 2019. Average loans for the comparable period increased $828.6 million, or 13.9%. Loans acquired with of the Santander branch acquisition contributed $26.1 million to the increase in average loans during the third quarter 2019.
Net interest income also benefited from a $663.2 million increase in average net free funds at June 30, 2020 as compared to June 30, 2019. Average net free funds are the excess of noninterest-bearing demand deposits, other noninterest-bearing liabilities and shareholders’ equity over noninterest-earning assets. The largest component of the increase in net free funds was an increase of $633.6 million, or 42.3%, in noninterest-bearing demand deposit average balances. Average time deposits for the three months ended June 30, 2020 decreased by $93.7 million at lower costs compared to the comparable period in 2019, decreasing interest expense by $0.4 million. Increases in market interest rates negatively impacted interest expense by $5.3 million, while changes in the mix of interest-bearing liabilities had a $1.3 million positive impact.
The following table reconciles interest income in the Consolidated Statements of Income to net interest income adjusted to a fully taxable equivalent basis for the three months ended June 30:
20202019
 (dollars in thousands)
Interest income per Consolidated Statements of Income$74,981  $82,057  
Adjustment to fully taxable equivalent basis359  455  
Interest income adjusted to fully taxable equivalent basis (non-GAAP)75,340  82,512  
Interest expense8,295  14,931  
Net interest income adjusted to fully taxable equivalent basis (non-GAAP)$67,045  $67,581  


56

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


The following is an analysis of the average balance sheets and net interest income on a fully taxable equivalent basis for the three months ended June 30:
 20202019
 Average
Balance
Income /
Expense (a)
Yield
or
Rate
Average
Balance
Income /
Expense (a)
Yield
or
Rate
 (dollars in thousands)
Assets
Interest-earning assets:
Interest-bearing deposits with banks$166,282  $32  0.08 %$2,967  $46  6.22 %
Tax-free investment securities44,171  338  3.08  67,815  525  3.11  
Taxable investment securities1,201,822  6,606  2.21  1,208,250  8,207  2.72  
Loans, net of unearned income (b)(c)(e)6,777,883  68,364  4.06  5,949,332  73,734  4.97  
Total interest-earning assets8,190,158  75,340  3.70  7,228,364  82,512  4.58  
Noninterest-earning assets:
Cash94,223  89,020  
Allowance for credit losses(80,717) (51,476) 
Other assets839,890  720,566  
Total noninterest-earning assets853,396  758,110  
Total Assets$9,043,554  $7,986,474  
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand deposits (d)$1,573,595  $254  0.06 %$1,270,135  $1,853  0.59 %
Savings deposits (d)2,994,607  2,507  0.34  2,506,881  3,692  0.59  
Time deposits776,892  2,925  1.51  870,603  3,732  1.72  
Short-term borrowings112,063  47  0.17  533,716  3,017  2.27  
Long-term debt233,819  2,562  4.41  211,087  2,637  5.01  
Total interest-bearing liabilities5,690,976  8,295  0.59  5,392,422  14,931  1.11  
Noninterest-bearing liabilities and shareholders’ equity:
Noninterest-bearing demand deposits (d)2,130,775  1,497,199  
Other liabilities150,254  87,429  
Shareholders’ equity1,071,549  1,009,424  
Total noninterest-bearing funding sources3,352,578  2,594,052  
Total Liabilities and Shareholders’ Equity$9,043,554  $7,986,474  
Net Interest Income and Net Yield on Interest-Earning Assets$67,045  3.29 %$67,581  3.75 %
(a)Income on interest-earning assets has been computed on a fully taxable equivalent basis using the 21% federal income tax statutory rate for the three months ended June 30, 2020 and 2019.
(b)Loan balances include held for sale and nonaccrual loans. Income on nonaccrual loans is accounted for on the cash basis.
(c)Loan income includes loan fees earned.
(d)Average balances do not include reallocations from noninterest-bearing demand deposits and interest-bearing demand deposits into savings deposits, which were made for regulatory purposes.

57

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


The following table shows the effect of changes in volumes and rates on interest income and interest expense for the three months ended March 31,June 30, 2020 compared with March 31,June 30, 2019:
 
Analysis of Year-to-Year Changes in Net Interest Income Analysis of Year-to-Year Changes in Net Interest Income
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) (dollars in thousands)
Interest-earning assets:Interest-earning assets:Interest-earning assets:
Interest-bearing deposits with banksInterest-bearing deposits with banks$(17) $30  $(47) Interest-bearing deposits with banks$(14) $2,533  $(2,547) 
Tax-free investment securitiesTax-free investment securities(130) (128) (2) Tax-free investment securities(187) (183) (4) 
Taxable investment securitiesTaxable investment securities(1,464) (328) (1,136) Taxable investment securities(1,601) (44) (1,557) 
LoansLoans1,286  5,411  (4,125) Loans(5,370) 10,267  (15,637) 
Total interest income (b)Total interest income (b)(325) 4,985  (5,310) Total interest income (b)(7,172) 12,573  (19,745) 
Interest-bearing liabilities:Interest-bearing liabilities:Interest-bearing liabilities:
Interest-bearing demand depositsInterest-bearing demand deposits(350) 224  (574) Interest-bearing demand deposits(1,599) 446  (2,045) 
Savings depositsSavings deposits582  479  103  Savings deposits(1,185) 717  (1,902) 
Time depositsTime deposits42  (155) 197  Time deposits(807) (402) (405) 
Short-term borrowingsShort-term borrowings(2,850) (2,311) (539) Short-term borrowings(2,970) (2,386) (584) 
Long-term debtLong-term debt73  663  (590) Long-term debt(75) 284  (359) 
Total interest expenseTotal interest expense(2,503) (1,100) (1,403) Total interest expense(6,636) (1,341) (5,295) 
Net interest incomeNet interest income$2,178  $6,085  $(3,907) Net interest income$(536) $13,914  $(14,450) 
 
(a)Changes in interest income or expense not arising solely as a result of volume or rate variances are allocated to rate variances.
(b)Changes in interest income have been computed on a fully taxable equivalent basis using the 21% federal income tax statutory rate.
Provision for Credit Losses
The provision for credit losses is determined based on management’s estimates of the appropriate level of the allowance for credit losses needed for probable losses inherent in the loan portfolio, after giving consideration to charge-offs and recoveries for the period. The provision for credit losses is an amount added to the allowance, against which credit losses are charged.
 
The table below provides a breakout of the provision for credit losses by loan category for the three months ended March 31:June 30: 
20202019 20202019
DollarsPercentageDollarsPercentage DollarsPercentageDollarsPercentage
(dollars in thousands) (dollars in thousands)
Commercial, financial, agricultural and otherCommercial, financial, agricultural and other$7,899  26 %$1,381  34 %Commercial, financial, agricultural and other$(1,350) (19)%$1,161  41 %
Real estate constructionReal estate construction294   210   Real estate construction360   195   
Residential real estateResidential real estate4,133  13  292   Residential real estate1,517  22  (42) (1) 
Commercial real estateCommercial real estate12,957  42  1,090  27  Commercial real estate4,134  60  56   
Loans to individualsLoans to individuals5,684  18  1,122  27  Loans to individuals2,198  32  1,465  51  
TotalTotal$30,967  100 %$4,095  100 %Total$6,859  100 %$2,835  100 %
The provision for credit losses for the three months ended March 31,June 30, 2020 increased in comparison to the three months ended March 31,June 30, 2019 by $26.9$4.0 million. The level of provision expense in the first three monthssecond quarter of 2020 is primarily to build up the allowance for loan lossa result of a $5.6 million increase in order to provide for estimated credit risks related to the COVID-19 pandemic. Contributing to the higher provision in the first quarter was $7.4 million in specific reserves, of which $4.4 million related to loans for three commercial real estate borrowers that were placed on nonaccrual status as of March 31, 2020. Additionally, $16.7 million of the provision expense is attributable to higher qualitative reserves due to the uncertain economic environment, additional risks related to the large volume of consumer forbearances as of March 31, 2020 and consideration of the estimated probable losses incurred in certain loan categories that may be affected by COVID-19, such as hospitality and senior living. Net charge-offs duringretail. Offsetting these increases is a $2.9 million decrease in specific reserves due to the first quarterpayoff of two commercial real estate relationships. Charge-offs for the three months ended June 30, 2020 totaled $3.5 million.were $4.5 million, of which $2.7 million was provided for in previous quarters.
The level of provision expense in the first three monthssecond quarter of 2019 was primarily a result of $2.2due to $1.4 million in net charge-offs, a $0.4$0.5 million increase in specific reserves and growth in the loan portfolio. .

4558

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


The allowance for credit losses was $79.1 million, or 1.25%, of total loans outstanding and 1.35% of total originated loans outstanding at March 31, 2020, compared to $51.6 million, or 0.83%, and 0.90%, respectively, at December 31, 2019 and $49.7 million, or 0.85%, and 0.92%, respectively, at March 31, 2019. Nonperforming loans as a percentage of total loans increased to 0.93% at March 31, 2020 from 0.52% at December 31, 2019 and 0.53% as of March 31, 2019. The allowance to nonperforming loan ratio was 133.71%, 160.28% and 158.74% as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively.
Below is an analysis of the consolidated allowance for credit losses for the three months ended March 31,June 30, 2020 and 2019 and the year-ended December 31, 2019:
 
March 31, 2020March 31, 2019December 31, 20196/30/20206/30/201912/31/2019
(dollars in thousands) (dollars in thousands)
Balance, beginning of periodBalance, beginning of period$51,637  $47,764  $47,764  Balance, beginning of period$79,075  $49,653  $47,764  
Loans charged off:Loans charged off:Loans charged off:
Commercial, financial, agricultural and otherCommercial, financial, agricultural and other486  1,009  3,393  Commercial, financial, agricultural and other1,285  385  3,393  
Real estate constructionReal estate construction—  —  —  Real estate construction—  —  —  
Residential real estateResidential real estate577  181  1,042  Residential real estate73  99  1,042  
Commercial real estateCommercial real estate266  299  2,008  Commercial real estate2,151  —  2,008  
Loans to individualsLoans to individuals2,619  1,115  5,831  Loans to individuals1,397  1,369  5,831  
Total loans charged offTotal loans charged off3,948  2,604  12,274  Total loans charged off4,906  1,853  12,274  
Recoveries of loans previously charged off:Recoveries of loans previously charged off:Recoveries of loans previously charged off:
Commercial, financial, agricultural and otherCommercial, financial, agricultural and other81  87  326  Commercial, financial, agricultural and other51  84  326  
Real estate constructionReal estate construction—  42  158  Real estate construction26  42  158  
Residential real estateResidential real estate75  105  315  Residential real estate71  114  315  
Commercial real estateCommercial real estate44  41  189  Commercial real estate—  38  189  
Loans to individualsLoans to individuals219  123  626  Loans to individuals265  148  626  
Total recoveriesTotal recoveries419  398  1,614  Total recoveries413  426  1,614  
Net credit lossesNet credit losses3,529  2,206  10,660  Net credit losses4,493  1,427  10,660  
Provision charged to expenseProvision charged to expense30,967  4,095  14,533  Provision charged to expense6,859  2,835  14,533  
Balance, end of periodBalance, end of period$79,075  $49,653  $51,637  Balance, end of period$81,441  $51,061  $51,637  

Noninterest Income
The following table presents the components of noninterest income for the three months ended March 31:June 30: 
20202019$ Change% Change20202019$ Change% Change
(dollars in thousands) (dollars in thousands)
Noninterest Income:Noninterest Income:Noninterest Income:
Trust incomeTrust income$2,111  $1,926  $185  10 %Trust income$2,109  $1,970  $139  %
Service charges on deposit accountsService charges on deposit accounts4,745  4,245  500  12  Service charges on deposit accounts3,286  4,593  (1,307) (28) 
Insurance and retail brokerage commissionsInsurance and retail brokerage commissions1,995  1,961  34   Insurance and retail brokerage commissions1,831  2,014  (183) (9) 
Income from bank owned life insuranceIncome from bank owned life insurance1,616  1,426  190  13  Income from bank owned life insurance1,800  1,442  358  25  
Card-related interchange income5,262  4,730  532  11  
Card related interchange incomeCard related interchange income5,886  5,441  445   
Swap fee incomeSwap fee income214  393  (179) (46) Swap fee income609  820  (211) (26) 
Other incomeOther income1,807  1,705  102   Other income1,680  1,786  (106) (6) 
SubtotalSubtotal17,750  16,386  1,364   Subtotal17,201  18,066  (865) (5) 
Net securities gainsNet securities gains19  —  19  N/A  Net securities gains   33  
Gain on sale of mortgage loansGain on sale of mortgage loans2,546  1,428  1,118  78  Gain on sale of mortgage loans4,243  2,074  2,169  105  
Gain on sale of other loans and assetsGain on sale of other loans and assets699  1,084  (385) (36) Gain on sale of other loans and assets581  1,777  (1,196) (67) 
Derivatives mark to marketDerivatives mark to market(1,741) (26) (1,715) 6,596  Derivatives mark to market(221) (17) (204) 1,200  
Total noninterest incomeTotal noninterest income$19,273  $18,872  $401  %Total noninterest income$21,812  $21,906  $(94) — %
 
Total noninterest income for the three months ended June 30, 2020 decreased $0.1 million in comparison to the three months ended June 30, 2019. The most significant changes include a $2.2 million increase in the gain on sale of mortgage loans primarily due to growth in our mortgage lending area offset by a $1.2 million decrease in gain on sale of other loans and assets due to a decline in the volume of SBA loans sold during the quarter due to the focus on PPP loan orignation. Additionally, card-related interchange income increased $0.4 million as a result of the Santander branches, which were acquired on September 6,
46
59

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


Total noninterest income, excluding net securities gains, gain2019. Service charges on sale of mortgage loans, gain on sale of other loans and assets and derivatives mark to marketdeposits decreased $1.3 million for the three months ended March 31, 2020 increased $1.4 million, or 8%, compared to the three months ended March 31, 2019. Card-related interchange income increased $0.5 million due to growth in customer accounts and transactions, including $0.4 million attributable to the Santander branch acquisition in the third quarter of 2019. Service charges oncustomers maintaining higher deposit accounts increased $0.5 million due to growth in customer accounts, as well as $0.3 million attributable to the Santander branch acquisition..
Total noninterest income increased $0.4 million, or 2%, compared to the same period in the prior year. The most significant changes, other than the changes noted above, include a $1.1 million increase in gain on sale of mortgage loansbalances as a result of growth in our mortgage lending area. The mark to market adjustment on interest rate swaps entered into for our commercial customers resulted in a decreasethe CARES Act stimulus during the second quarter of $1.7 million. This adjustment does not reflect a realized loss on the swaps, but rather relates to change in fair value due to movements in corporate bond spreads and swap rates.2020.
Noninterest Expense
The following table presents the components of noninterest expense for the three months ended March 31:June 30: 
20202019$ Change% Change20202019$ Change% Change
(dollars in thousands) (dollars in thousands)
Noninterest Expense:Noninterest Expense:Noninterest Expense:
Salaries and employee benefitsSalaries and employee benefits$29,977  $27,220  $2,757  10 %Salaries and employee benefits$28,773  $27,311  $1,462  %
Net occupancyNet occupancy4,973  4,916  57   Net occupancy4,397  4,441  (44) (1) 
Furniture and equipmentFurniture and equipment3,778  3,668  110   Furniture and equipment3,657  3,824  (167) (4) 
Data processingData processing2,467  2,544  (77) (3) Data processing2,596  2,619  (23) (1) 
Advertising and promotionAdvertising and promotion1,150  1,240  (90) (7) Advertising and promotion1,535  1,231  304  25  
Pennsylvania shares taxPennsylvania shares tax738  916  (178) (19) Pennsylvania shares tax1,254  1,260  (6) —  
Intangible amortizationIntangible amortization934  754  180  24  Intangible amortization919  745  174  23  
Collection and repossessionCollection and repossession564  547  17   Collection and repossession341  460  (119) (26) 
Other professional fees and servicesOther professional fees and services910  754  156  21  Other professional fees and services920  1,032  (112) (11) 
FDIC insuranceFDIC insurance28  574  (546) (95) FDIC insurance733  555  178  32  
Unfunded commitment reserveUnfunded commitment reserve(2,539) (381) (2,158) 566  Unfunded commitment reserve887  612  275  45  
Other operatingOther operating6,688  6,512  176   Other operating5,866  6,403  (537) (8) 
SubtotalSubtotal49,668  49,264  404   Subtotal51,878  50,493  1,385   
Loss on sale or write-down of assetsLoss on sale or write-down of assets213  65  148  228  Loss on sale or write-down of assets140  1,181  (1,041) (88) 
COVID-19 relatedCOVID-19 related419  —  419  —  
Litigation and operational lossesLitigation and operational losses390  401  (11) (3) Litigation and operational losses319  555  (236) (43) 
Total noninterest expenseTotal noninterest expense$50,271  $49,730  $541  %Total noninterest expense$52,756  $52,229  $527  %

Noninterest expense increased $0.5 million, or 1%, for the three months ended March 31,June 30, 2020 compared to the same period in 2019. Contributing to the higher expenses in 2020 is a $2.8$1.5 million increase in salaries and employee benefits as a result of a higher number of full-time equivalent employees due to the Santander branch acquisition in the third quarter of 2019, annual merit increases and a $0.7$1.0 million increase in hospitalization expense. The higher numberOperating expenses related to the Santander branches, which were acquired on September 6, 2019, resulted in $1.8 million in noninterest expense during the second quarter of employees2020. Offsetting this increase is primarily a result of the acquisition of 14 branches from Santander in September 2019 and continued expansion of our mortgage and commercial banking businesses. The Santander acquisition accounted for $1.0 million of the salaries and employee benefits increase. Offsetting the increase in salaries and employee benefits was a $2.2 million decrease in unfunded commitment expense.loss on sale or write-down of assets. This decrease is primarily due to a result of updates made$0.5 million write-down recognized on an OREO property in the firstsecond quarter of 2020 to the probability of default and loss given default information incorporated into the calculation. FDIC insurance decreased $0.5 million2019 with no similar activity in comparison to the prior period as a result of a $0.6 million assessment credit received due to the FDIC deposit insurance fund reaching the required minimum reserve ratio. The company has $79 thousand in remaining credits that will offset future FDIC expense.2020.
Income Tax
The provision for income taxes decreased $4.9$1.7 million or 82.6%, for the three months ended March 31,June 30, 2020, compared to the corresponding period in 2019.  The effective tax rate decreased 160230 basis points or 8.2%, primarilyfrom 19.7% to 17.4% due to a $24.8$5.1 million decrease in income before income taxes offset by a $0.2$0.4 million decreaseincrease in tax-free income from bank owned life insurance.
We applied the “annual effective tax rate approach” to determine the provision for income taxes, which applies an annual forecast of tax expense as a percentage of expected full year income, for the three months ended March 31,June 30, 2020 and 2019.
47

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


We generate an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest, income from bank owned life insurance and tax benefits associated with low income housing tax credits, all of which are relatively consistent regardless of the level of pretax income. These provided for an annual effective tax rate of 17.9% and 19.5% for the three months ended March 31, 2020 and 2019, respectively.
As of March 31, 2020, our deferred tax assets totaled $17.3 million. Based on our evaluation, we determined that it is more likely than not that all of these assets will be realized. As a result, a valuation allowance against these assets was not recorded. In evaluating the need for a valuation allowance, we estimate future taxable income based on management approved forecasts, evaluation of historical earning levels and consideration of potential tax strategies. If future events differ from our current forecasts, we may need to establish a valuation allowance, which could have a material impact on our financial condition and results of operations.
Liquidity
Liquidity refers to our ability to meet the cash flow requirements of depositors and borrowers as well as our operating cash needs with cost-effective funding. We generate funds to meet these needs primarily through the core deposit base of First Commonwealth Bank and the maturity or repayment of loans and other interest-earning assets, including investments. During the first threesix months of 2020, the maturity and redemption of investment securities provided $68.6$167.3 million in liquidity. These funds contributed to the liquidity used to pay down short-term borrowings, originate loans, purchase investment securities and fund depositor withdrawals.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


We also have available unused wholesale sources of liquidity, including overnight federal funds and repurchase agreements, advances from the FHLB of Pittsburgh, borrowings through the discount window at the Federal Reserve Bank of Cleveland (“FRB”) and access to certificates of deposit through brokers.
We participate in the Certificate of Deposit Account Registry Services (“CDARS”) program as part of an Asset/Liability Committee (“ALCO”) strategy to increase and diversify funding sources. As of March 31,June 30, 2020, our maximum borrowing capacity under this program was $1.3$1.4 billion and as of that date there was $4.2 million outstanding with an average weighted rate of 0.95%0.94% and an average original term of 332 days. These deposits are part of a reciprocal program which allows our depositors to receive expanded FDIC coverage by placing multiple certificates of deposit at other CDARS member banks.
An additional source of liquidity is the FRB Borrower-in-Custody of Collateral program, which enables us to pledge certain loans that are not being used as collateral at the FHLB as collateral for borrowings at the FRB. At March 31,June 30, 2020, the borrowing capacity under this program totaled $803.3$805.4 million and there was $27.0 millionno balance outstanding. As of March 31,June 30, 2020, our maximum borrowing capacity at the FHLB of Pittsburgh was $1.5 billion and as of that date amounts used against this capacity included $0.1 billion$56.6 million in outstanding borrowings and no outstanding letters of credit.
We also have available unused federal funds lines with six correspondent banks. These lines have an aggregate commitment of $180.0 million with no outstanding balance as of March 31,June 30, 2020. In addition, we have available unused repo lines with three correspondent banks. These lines have an aggregate commitment of $506.1$455.9 million with no outstanding balance as of March 31,June 30, 2020.
First Commonwealth Financial Corporation has an unsecured $20.0 million line of credit with another financial institution. As of March 31,June 30, 2020, there are no amounts outstanding on this line.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


First Commonwealth’s long-term liquidity source is its core deposit base. Core deposits are the most stable source of liquidity a bank can have due to the long-term relationship with a deposit customer. The following table shows a breakdown of the components of First Commonwealth’s deposits: 
March 31, 2020December 31, 2019June 30, 2020December 31, 2019
(dollars in thousands) (dollars in thousands)
Noninterest-bearing demand deposits(a)
Noninterest-bearing demand deposits(a)
$1,751,524  $1,690,247  
Noninterest-bearing demand deposits(a)
$2,288,299  $1,690,247  
Interest-bearing demand deposits(a)
Interest-bearing demand deposits(a)
326,122  254,981  
Interest-bearing demand deposits(a)
327,691  254,981  
Savings deposits(a)
Savings deposits(a)
4,034,759  3,896,536  
Savings deposits(a)
4,431,919  3,896,536  
Time depositsTime deposits810,683  835,851  Time deposits734,292  835,851  
TotalTotal$6,923,088  $6,677,615  Total$7,782,201  $6,677,615  
(a)Balances include reallocations from noninterest-bearing demand deposits and interest-bearing demand deposits into savings deposits, which were made for regulatory purposes.
The level of deposits during any period is influenced by factors outside of management’s control, such as the level of short-term and long-term market interest rates and yields offered on competing investments, such as money market mutual funds.
During the first threesix months of 2020, total deposits increased $245.5 million.$1.1 billion. Interest-bearing demand and savings deposits increased $209.4$608.1 million, noninterest-bearing demand deposits increased $61.3$598.1 million and time deposits decreased $25.2$101.6 million. The deposit increase is a result of elevated customer deposit balances from PPP loan proceeds and the deposit of Federal stimulus checks into our customers deposit accounts.
Market Risk
The following gap analysis compares the difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing over a period of time. The ratio of rate-sensitive assets to rate-sensitive liabilities repricing within a one-year period was 0.860.51 and 0.80 at March 31,June 30, 2020 and December 31, 2019, respectively. A ratio of less than one indicates a higher level of repricing liabilities over repricing assets over the next twelve months. The level of First Commonwealth's ratio is largely driven by the modeling of interest-bearing non-maturity deposits, which are included in the analysis as repricing within one year.
 
Gap analysis has limitations due to the static nature of the model that holds volumes and consumer behaviors constant in all economic and interest rate scenarios. A lower level of rate sensitive assets to rate sensitive liabilities repricing in one year could indicate reduced net interest income in a rising interest rate scenario, and conversely, increased net interest income in a declining interest rate scenario. However, the gap analysis incorporates only the level of interest-earning assets and interest-bearinginterest-
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


bearing liabilities and not the sensitivity each has to changes in interest rates. The impact of the sensitivity to changes in interest rates is provided in the table below the gap analysis.

The following is the gap analysis as of March 31,June 30, 2020 and December 31, 2019: 
March 31, 2020 June 30, 2020
0-90 Days91-180
Days
181-365
Days
Cumulative
0-365 Days
Over 1 Year
Through 5
Years
Over 5
Years
0-90 Days91-180
Days
181-365
Days
Cumulative
0-365 Days
Over 1 Year
Through 5
Years
Over 5
Years
(dollars in thousands) (dollars in thousands)
LoansLoans$2,890,222  $363,268  $595,956  $3,849,446  $1,973,756  $421,916  Loans$551,035  $519,138  $949,394  $2,019,567  $3,358,984  $1,544,837  
InvestmentsInvestments157,369  174,933  259,271  591,573  581,227  118,248  Investments144,139  124,786  190,014  458,939  461,451  248,640  
Other interest-earning assetsOther interest-earning assets15,762  —  —  15,762  —  —  Other interest-earning assets348,763  —  —  348,763  —  —  
Total interest-sensitive assets (ISA)Total interest-sensitive assets (ISA)3,063,353  538,201  855,227  4,456,781  2,554,983  540,164  Total interest-sensitive assets (ISA)1,043,937  643,924  1,139,408  2,827,269  3,820,435  1,793,477  
Certificates of depositCertificates of deposit176,926  145,159  302,616  624,701  182,870  2,126  Certificates of deposit160,323  189,759  233,152  583,234  148,541  2,156  
Other depositsOther deposits4,360,880  —  —  4,360,880  —  —  Other deposits4,759,609  —  —  4,759,609  —  —  
BorrowingsBorrowings219,332  194  387  219,913  103,096  52,884  Borrowings180,846  194  50,389  231,429  3,110  102,702  
Total interest-sensitive liabilities (ISL)Total interest-sensitive liabilities (ISL)4,757,138  145,353  303,003  5,205,494  285,966  55,010  Total interest-sensitive liabilities (ISL)5,100,778  189,953  283,541  5,574,272  151,651  104,858  
GapGap$(1,693,785) $392,848  $552,224  $(748,713) $2,269,017  $485,154  Gap$(4,056,841) $453,971  $855,867  $(2,747,003) $3,668,784  $1,688,619  
ISA/ISLISA/ISL0.64  3.70  2.82  0.86  8.93  9.82  ISA/ISL0.20  3.39  4.02  0.51  25.19  17.10  
Gap/Total assetsGap/Total assets19.89 %4.61 %6.49 %8.79 %26.65 %5.70 %Gap/Total assets43.32 %4.85 %9.14 %29.33 %39.18 %18.03 %

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


 
 December 31, 2019
 0-90 Days91-180
Days
181-365
Days
Cumulative
0-365 Days
Over 1 Year
Through 5
Years
Over 5
Years
 (dollars in thousands)
Loans$2,818,183  $313,651  $494,467  $3,626,301  $2,052,952  $475,962  
Investments103,225  79,866  162,225  345,316  633,178  235,437  
Other interest-earning assets19,510  —  —  19,510  —  —  
Total interest-sensitive assets (ISA)2,940,918  393,517  656,692  3,991,127  2,686,130  711,399  
Certificates of deposit121,302  161,488  303,245  586,035  246,512  2,822  
Other deposits4,151,518  —  —  4,151,518  —  —  
Borrowings274,213  193  385  274,791  103,082  53,064  
Total interest-sensitive liabilities (ISL)4,547,033  161,681  303,630  5,012,344  349,594  55,886  
Gap$(1,606,115) $231,836  $353,062  $(1,021,217) $2,336,536  $655,513  
ISA/ISL0.65  2.43  2.16  0.80  7.68  12.73  
Gap/Total assets19.33 %2.79 %4.25 %12.29 %28.12 %7.89 %

The following table presents an analysis of the potential sensitivity of our annual net interest income to gradual changes in interest rates over a 12 month time frame as compared with net interest income if rates remained unchanged and there are no changes in balance sheet categories.
 
 Net interest income change (12 months) for basis point movements of:
 -200-100+100+200
 (dollars in thousands)
March 31, 2020 ($)$(10,005) $(6,696) $4,604  $8,444  
March 31, 2020 (%)(3.94)%(2.64)%1.81 %3.33 %
December 31, 2019 ($)$(12,540) $(5,880) $4,279  $8,032  
December 31, 2019 (%)(4.52)%(2.12)%1.54 %2.90 %
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


 Net interest income change (12 months) for basis point movements of:
 -200-100+100+200
 (dollars in thousands)
June 30, 2020 ($)$(6,288) $(4,198) $2,955  $5,583  
June 30, 2020 (%)(2.25)%(1.50)%1.06 %2.00 %
December 31, 2019 ($)$(12,540) $(5,880) $4,279  $8,032  
December 31, 2019 (%)(4.52)%(2.12)%1.54 %2.90 %
The following table represents the potential sensitivity of our annual net interest income to immediate changes in interest rates versus if rates remained unchanged and there are no changes in balance sheet categories.
Net interest income change (12 months) for basis point movements of: Net interest income change (12 months) for basis point movements of:
-200-100+100+200 -200-100+100+200
(dollars in thousands) (dollars in thousands)
March 31, 2020 ($)$(40,677) $(20,727) $11,393  $20,557  
March 31, 2020 (%)(14.65)%(7.46)%4.10 %7.40 %
June 30, 2020 ($)June 30, 2020 ($)$(15,453) $(11,213) $10,018  $17,592  
June 30, 2020 (%)June 30, 2020 (%)(5.54)%(4.02)%3.59 %6.31 %
December 31, 2019 ($)December 31, 2019 ($)$(41,661) $(21,604) $12,259  $22,291  December 31, 2019 ($)$(41,661) $(21,604) $12,259  $22,291  
December 31, 2019 (%)December 31, 2019 (%)(15.02)%(7.79)%4.42 %8.04 %December 31, 2019 (%)(15.02)%(7.79)%4.42 %8.04 %
The analysis and model used to quantify the sensitivity of our net interest income becomes less meaningful in a decreasing 200 basis point scenario given the current interest rate environment. Results of the 100 and 200 basis point interest rate decline scenario are affected by the fact that many of our interest-bearing liabilities are at rates below 1%, with an assumed floor of zero in the model. In the threesix months ended March 31,June 30, 2020 and 2019, the cost of our interest-bearing liabilities averaged 0.85%0.72% and 1.07%1.09%, respectively, and the yield on our average interest-earning assets, on a fully taxable equivalent basis, averaged 4.27%3.97% and 4.55%4.57%, respectively.
Asset/liability models require that certain assumptions be made, such as prepayment rates on earning assets and the impact of pricing on non-maturity deposits, which may differ from actual experience. These business assumptions are based upon our
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


experience, business plans and published industry experience. While management believes such assumptions to be reasonable, there can be no assurance that modeled results will approximate actual results.
Credit Risk
First Commonwealth maintains an allowance for credit losses at a level deemed sufficient for losses inherent in the loan portfolio at the date of each statement of financial condition. Management reviews the appropriateness of the allowance on a quarterly basis to ensure that the provision for credit losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is appropriate based on management’s assessment of probable estimated losses.

On March 27, 2020, the CARES Act was signed into law, which provides banking organizations with optional, temporary relief from complying with Accounting Standards Update No. 2016-13, “Financial Instruments—Credit Losses,” Topic 326, “Measurement of Credit Losses on Financial Instruments” (“CECL”). The Company had planned to adopt CECL as of January 1, 2020, however, due to the uncertain economic conditions caused by the COVID-19 pandemic and the resulting volatility of economic forecasts, the Company elected to defer its adoption of CECL and has, therefore, calculated reserves for loan losses under the incurred loss method at March 31,June 30, 2020.
First Commonwealth’s methodology for assessing the appropriateness of the allowance for credit losses consists of several key elements. These elements include an assessment of individual impaired loans with a balance greater than $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 $2.0$2.9 million at March 31,June 30, 2020 and is classified in "Other liabilities" on the unaudited Consolidated Statements of Financial Condition.
Nonperforming loans include nonaccrual loans and loans classified as troubled debt restructurings. Nonaccrual loans represent loans on which interest accruals have been discontinued. Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the deteriorating financial position of
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


the borrower, who could not obtain comparable terms from alternative financing sources. In the first threesix months of 2020, 1216 loans totaling $0.3$0.5 million were identified as troubled debt restructurings.
The balance of troubled debt restructured loans decreased $0.5$2.5 million from December 31, 2019. Changes during the first threesix months of 2020 can be attributed to new restructurings in conjunction with bankruptcy offset by payments received on existing troubled debt restructured loans.loans, including the $1.9 million payoff of a commercial loan relationship. Please refer to Note 8 “Loans and Allowance for Credit Losses,” for additional information on troubled debt restructurings.

In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 national emergency. These modifications typically provide for the deferral of both principal and interest for 90 days. The CARES Act, along with a joint agency statement issued by banking regulators, provides that short-term modifications of up to 180 days made in response to COVID-19 do not need to be accounted for as a TDR. As of AprilJuly 24, 2020, the Company has granted approximately 6,0006,500 deferrals to its customers with aggregate principal balances of $1.1$1.4 billion. Payment deferrals granted on approximately 6,300 accounts or $1.2 billion in balances have expired as of July 24th, 2020. It is likely that some of these deferrals will be extended for an additional 90 days in order to provide support for certain COVID-19 impacted customers.

We discontinue interest accruals on a loan when, based on current information and events, it is probable that we will be unable to fully collect principal or interest due according to the contractual terms of the loan. A loan is also placed on nonaccrual status when, based on regulatory definitions, the loan is maintained on a “cash basis” due to the weakened financial condition of the borrower. Generally, loans 90 days or more past due are placed on nonaccrual status, except for consumer loans, which are placed on nonaccrual status at 150 days past due.
Nonperforming loans are closely monitored on an ongoing basis as part of our loan review and work-out process. The probable risk of loss on these loans is evaluated by comparing the loan balance to the fair value of any underlying collateral or the present value of projected future cash flows. Losses or a specifically assigned allowance for loan losses are recognized where appropriate.
Nonperforming loans, including loans held for sale, increased $26.9$23.8 million to $59.1$56.0 million at March 31,June 30, 2020 compared to $32.2 million at December 31, 2019. During the threesix months ended March 31,June 30, 2020, $32.2$38.6 million of loans were moved to nonaccrual including the transfer of fourfive commercial real estate relationships totaling $27.0$28.8 million and one commercial, financial, agricultural and other relationship totaling $5.5 million. Offsetting these additions was a $2.0$3.9 million payoff of a commercial real estate relationship, a $1.9 million payoff of a commercial, financial, agricultural and other relationship and a $2.3 million paydown of a commercial, financial, agricultural and other relationship.
The allowance for credit losses as a percentage of nonperforming loans was 133.71%145.37% as of March 31,June 30, 2020, compared to 160.28% at December 31, 2019, and 158.74%143.62% at March 31,June 30, 2019. The amount of specific reserves included in the allowance for
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


nonperforming loans was determined by using fair values obtained from current appraisals and updated discounted cash flow analyses. The allowance for credit losses includes specific reserves of $9.8$6.9 million and general reserves of $69.3$74.5 million as of March 31,June 30, 2020. Specific reserves increased $7.4$4.5 million from December 31, 2019, and $7.8$4.4 million from March 31,June 30, 2019. The increase from both periods is primarily due to specific reserves of $4.0$5.9 million added on the $27.0$28.8 million in new commercial real estate nonaccrual loans. In addition,Offsetting this was a $0.9 million decrease in specific reserves increased $1.0 million on a commercial real estate relationship and $0.7 million on arelated to commercial, financial, agricultural and other relationship, both as a result of updated appraisals.loans and an $0.8 million decrease related to commercial real estate loans due to the aforementioned payoffs. Management believes that the allowance for credit losses is at a level deemed sufficient to absorb losses inherent in the loan portfolio at March 31,June 30, 2020.
Criticized loans totaled $117.5$125.4 million at March 31,June 30, 2020 and represented 1.9%1.8% of the loan portfolio. The level of criticized loans increased as of March 31,June 30, 2020 when compared to December 31, 2019, by $16.9$24.8 million, or 16.8%24.7%. Classified loans totaled $90.2$76.9 million at March 31,June 30, 2020 compared to $52.0 million at December 31, 2019, an increase of $38.2$24.9 million, or 73.4%47.8%. The increase in criticized loans is primarily the result of the aforementioned changes in nonperforming loans. Delinquency on accruing loans for the same period decreased $1.3$6.0 million, or 10.0%44.3%, the majority of which are residential real estate loans.
The allowance for credit losses was $79.1$81.4 million at March 31,June 30, 2020, or 1.25%1.18% of total loans outstanding, compared to 0.83% reported at December 31, 2019, and 0.85% at March 31,June 30, 2019. General reserves, or the portion of the allowance related to loans that were not specifically evaluated for impairment, as a percentage of non-impaired loans were 1.11%1.09% at March 31,June 30, 2020 compared to 0.80% at December 31, 2019 and 0.82%0.81% at March 31,June 30, 2019. General reserves as a percentage of non-impaired originated loans were 1.19%1.15% at March 31,June 30, 2020 compared to 0.87% at December 31, 2019 and 0.89%0.88% at March 31,June 30, 2019. The increase in the general reserve for both periods is reflective of higher qualitative reserves maintained at March 31, 2010June 30, 2020 as a result of the COVID-19 pandemic. These reserves were increased in order to provide for risks related to the uncertain economic environment, the large volume of consumer forbearanceforbearances granted as of March 31,June 30, 2020 as a result of COVID-19 as well as consideration of the probable losses incurred in certain loan categories, such as hospitality and senior living.retail.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


The following table provides information related to nonperforming assets, the allowance for credit losses and other credit-related measures:
 
March 31, December 31, 2019  June 30, December 31, 2019 
2020 2019 December 31, 20192020 2019 December 31, 2019
(dollars in thousands)  (dollars in thousands) 
Nonperforming Loans:Nonperforming Loans:Nonperforming Loans:
Loans on nonaccrual basisLoans on nonaccrual basis$46,109    $16,286  $18,638    Loans on nonaccrual basis$44,968    $15,665  $18,638    
Loans held for sale on a nonaccrual basisLoans held for sale on a nonaccrual basis—    —    —    Loans held for sale on a nonaccrual basis—    —    —    
Troubled debt restructured loans on nonaccrual basisTroubled debt restructured loans on nonaccrual basis5,522    5,874    6,037    Troubled debt restructured loans on nonaccrual basis3,600    10,914    6,037    
Troubled debt restructured loans on accrual basisTroubled debt restructured loans on accrual basis7,509    9,120    7,542    Troubled debt restructured loans on accrual basis7,455    8,975    7,542    
Total nonperforming loansTotal nonperforming loans$59,140    $31,280    $32,217    Total nonperforming loans$56,023    $35,554    $32,217    
Loans past due 30 to 90 days and still accruingLoans past due 30 to 90 days and still accruing$10,683  $11,002  $11,378  Loans past due 30 to 90 days and still accruing$6,077  $10,030  $11,378  
Loans past due in excess of 90 days and still accruingLoans past due in excess of 90 days and still accruing$1,427    $1,509    $2,073    Loans past due in excess of 90 days and still accruing$1,421    $2,656    $2,073    
Other real estate ownedOther real estate owned$2,697    $3,993    $2,228    Other real estate owned$1,634    $1,884    $2,228    
Loans held for sale at end of periodLoans held for sale at end of period$25,783  $9,627  $15,989  Loans held for sale at end of period$30,409  $16,036  $15,989  
Portfolio loans outstanding at end of periodPortfolio loans outstanding at end of period$6,313,944    $5,871,070  $6,189,148    Portfolio loans outstanding at end of period$6,922,075    $6,003,059  $6,189,148    
Average loans outstandingAverage loans outstanding$6,255,825  (a) $5,811,587  (a) $5,987,398  (b) Average loans outstanding$6,516,854  (a) $5,880,840  (a) $5,987,398  (b) 
Nonperforming loans as a percentage of total loansNonperforming loans as a percentage of total loans0.93 %0.53 %0.52 %Nonperforming loans as a percentage of total loans0.81 %0.59 %0.52 %
Provision for credit lossesProvision for credit losses$30,967  (a) $4,095  (a) $14,533  (b) Provision for credit losses$37,826  (a) $6,930  (a) $14,533  (b) 
Allowance for credit lossesAllowance for credit losses$79,075    $49,653    $51,637    Allowance for credit losses$81,441    $51,061    $51,637    
Net charge-offsNet charge-offs$3,529  (a) $2,206  (a) $10,660  (b) Net charge-offs$8,022  (a) $3,633  (a) $10,660  (b) 
Net charge-offs as a percentage of average loans outstanding (annualized)Net charge-offs as a percentage of average loans outstanding (annualized)0.23 %0.15 %0.18 %Net charge-offs as a percentage of average loans outstanding (annualized)0.25 %0.12 %0.18 %
Provision for credit losses as a percentage of net charge-offsProvision for credit losses as a percentage of net charge-offs877.50 %(a) 185.63 %(a) 136.33 %(b) Provision for credit losses as a percentage of net charge-offs471.53 %(a) 190.75 %(a) 136.33 %(b) 
Allowance for credit losses as a percentage of end-of-period loans outstanding (c)Allowance for credit losses as a percentage of end-of-period loans outstanding (c)1.25 %0.85 %0.83 %Allowance for credit losses as a percentage of end-of-period loans outstanding (c)1.18 %0.85 %0.83 %
Allowance for credit losses on originated loans and leases as a percentage of end-of-period originated loans outstanding1.32 %0.92 %0.90 %
Allowance for credit losses as a percentage of end-of-period loans outstanding, excluding PPP loans (c)Allowance for credit losses as a percentage of end-of-period loans outstanding, excluding PPP loans (c)1.28 %0.85 %0.83 %
Allowance for credit losses on originated loans as a percentage of end-of-period originated loans outstandingAllowance for credit losses on originated loans as a percentage of end-of-period originated loans outstanding1.22 %0.92 %0.90 %
Allowance for credit losses on originated loans as a percentage of end-of-period originated loans outstanding, excluding PPP loansAllowance for credit losses on originated loans as a percentage of end-of-period originated loans outstanding, excluding PPP loans1.34 %0.92 %0.90 %
Allowance for credit losses as a percentage of nonperforming loans (d)Allowance for credit losses as a percentage of nonperforming loans (d)133.71 %158.74 %160.28 %Allowance for credit losses as a percentage of nonperforming loans (d)145.37 %143.62 %160.28 %
 
(a)For the three-monthsix-month period ended.
(b)For the twelve-month period ended.
(c)Does not include loans held for sale.
(d)Does not include nonperforming loans held for sale.

The following tables show the outstanding balances of our loan portfolio and the breakdown of net charge-offs and nonperforming loans, excluding loans held for sale, by loan type as of and for the periods presented:
 
 March 31, 2020December 31, 2019
 Amount%Amount%
 (dollars in thousands)
Commercial, financial, agricultural and other$1,272,240  20 %$1,241,853  20 %
Real estate construction413,458   449,039   
Residential real estate1,691,140  27  1,681,362  27  
Commercial real estate2,190,098  34  2,117,519  34  
Loans to individuals747,008  12  699,375  12  
Total loans and leases net of unearned income$6,313,944  100 %$6,189,148  100 %
During the three months ended March 31, 2020, loans increased $124.8 million, or 2.0%, compared to balances outstanding at December 31, 2019. All loan categories, except real estate construction, reflect growth for the three months ended March 31, 2020, with commercial real estate, loans to individuals and commercial, financial, agricultural providing a majority of the growth. Commercial, financial, agricultural and other loans increased $30.4 million, or 2.4%, largely due to growth in direct
 June 30, 2020December 31, 2019
 Amount%Amount%
 (dollars in thousands)
Commercial, financial, agricultural and other$1,773,099  26 %$1,241,853  20 %
Real estate construction416,329   449,039   
Residential real estate1,723,288  25  1,681,362  27  
Commercial real estate2,224,710  32  2,117,519  34  
Loans to individuals784,649  11  699,375  12  
Total loans and leases net of unearned income$6,922,075  100 %$6,189,148  100 %
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


lendingDuring the six months ended June 30, 2020, loans increased $732.9 million, or 11.8%, compared to balances outstanding at December 31, 2019. All loan categories, except real estate construction, reflect growth for the six months ended June 30, 2020, with commercial real estate, loans to individuals and commercial, financial, agricultural and other providing a majority of the growth.
Commercial, financial, agricultural and other loans increased $531.2 million, or 42.8%, due to the origination of $570.9 million in PennsylvaniaPPP loans for small businesses who meet the necessary eligibility requirements. PPP loans are 100% guaranteed by the SBA under the CARES Act and Ohio. 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. These loans carry a fixed rate of 1.00% and currently yield 2.7% after considering origination fees and costs. The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of loan. The loans are for a term of two years, if not forgiven, in whole or in part and payments are deferred for the first six months of the loan. Although the Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program, there could be risks and liability to the Company associated with participation in the program that cannot be determined at this time.
Real estate construction loans decreased $35.6$32.7 million, or 7.9%7.3%, primarily due to the completion of construction projects converting to commercial real estate loans. Residential real estate grew $9.8$41.9 million, or 0.6%2.5%, primarily due to originations of closed-end 1-4 family mortgage loans. Commercial real estate loans increased $72.6$107.2 million, or 3.4%5.1%, primarily due to construction real estate loans that converted to permanent loans. Loans to individuals increased $47.6$85.3 million, or 6.8%12.2%, as a result of growth in the indirect auto and recreational vehicle portfolio of $52.8$97.5 million offset by a decrease in other consumer loans of $5.2$12.2 million.
As indicated in the table below, commercial, financial, agricultural and other, residential real estate and commercial real estate loans represented a significant portion of the nonperforming loans as of March 31,June 30, 2020. See discussions related to the provision for credit losses and loans for more information.
For the Three Months Ended March 31, 2020As of March 31, 2020For the Six Months Ended June 30, 2020As of June 30, 2020
Net
Charge-
offs
% of
Total Net
Charge-offs
Net Charge-
offs as a % of
Average
Loans (annualized)
Nonperforming
Loans
% of Total
Nonperforming
Loans
Nonperforming
Loans as a % of
Total Loans
Net
Charge-
offs
% of
Total Net
Charge-offs
Net Charge-
offs as a % of
Average
Loans (annualized)
Nonperforming
Loans
% of Total
Nonperforming
Loans
Nonperforming
Loans as a % of
Total Loans
(dollars in thousands) (dollars in thousands)
Commercial, financial, agricultural and otherCommercial, financial, agricultural and other$405  11.48 %0.03 %$8,501  14.36 %0.13 %Commercial, financial, agricultural and other$1,639  20.43 %0.05 %$9,713  17.34 %0.14 %
Real estate constructionReal estate construction—  —  —  —  —  —  Real estate construction(26) (0.32) —  308  0.55  —  
Residential real estateResidential real estate502  14.22  0.03  12,164  20.57  0.19  Residential real estate504  6.28  0.02  11,531  20.58  0.17  
Commercial real estateCommercial real estate222  6.29  0.01  37,990  64.24  0.60  Commercial real estate2,373  29.58  0.07  33,985  60.66  0.49  
Loans to individualsLoans to individuals2,400  68.01  0.16  485  0.82  0.01  Loans to individuals3,532  44.03  0.11  486  0.87  0.01  
Total loans, net of unearned incomeTotal loans, net of unearned income$3,529  100.00 %0.23 %$59,140  100.00 %0.93 %Total loans, net of unearned income$8,022  100.00 %0.25 %$56,023  100.00 %0.81 %
Net charge-offs for the threesix months ended March 31,June 30, 2020 totaled $3.5$8.0 million, compared to $2.2$3.6 million for the threesix months ended March 31,June 30, 2019. The most significant charge-offs during the threesix months ended March 31,June 30, 2020 included $2.4$1.0 million in charge-offs related to two commercial, financial, agricultural and other loan relationships and a $2.2 million charge-off related to a commercial real estate loan relationship as well as $3.5 million in net charge-offs related to loans to individuals, primarily indirect auto loans and personal credit lines. See discussions related to the provision for credit losses and loans for more information.
Capital Resources
At March 31,June 30, 2020, shareholders’ equity was $1.1 billion, an increase of $2.3$20.0 million from December 31, 2019. The increase was primarily the result of $4.7$28.6 million in net income, $1.8$2.4 million in treasury stock sales and an increase of $11.8$15.9 million in the fair value of available for sale investments. These increases were partially offset by $10.8$21.6 million of dividends paid to shareholders and $5.2 million of common stock repurchases. Cash dividends declared per common share were $0.11$0.22 and $0.10$0.20 for the threesix months ended March 31,June 30, 2020 and 2019, respectively.
First Commonwealth and First Commonwealth Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


discretionary actions by regulators that, if undertaken, could have a direct material effect on First Commonwealth’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, First Commonwealth and First Commonwealth Bank must meet specific capital guidelines that involve quantitative measures of First Commonwealth’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. First Commonwealth’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.
Effective January 1, 2015, the Company became subject to the new regulatory risk-based capital rules adopted by the federal banking agencies implementing Basel III. The most significant changes included higher minimum capital requirements, as the minimum Tier I capital ratio increased from 4.0% to 6.0% and a new common equity Tier I capital ratio was established with a minimum level of 4.5%. Additionally, the rules improved the quality of capital by providing stricter eligibility criteria for regulatory capital instruments and provide for a phase-in, beginning January 1, 2016, of a capital conservation buffer of 2.5% of risk-weighted assets. This buffer, which was fully phased-in as of January 1, 2019, provides a requirement to hold common equity Tier 1 capital above the minimum risk-based capital requirements, resulting in an effective common equity Tier I risk-weighted asset minimum ratio of 7.0% on a fully phased-in basis.
The Basel III Rules also permit banking organizations with less than $15.0 billion in assets to retain, through a one-time election, the existing treatment for accumulated other comprehensive income, which currently does not affect regulatory capital. The Company elected to retain this treatment, which reduces the volatility of regulatory capital levels.
54

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


During the second quarter of 2018, First Commonwealth Bank, the Company's banking subsidiary, issued $100 million in subordinated debt, which under the regulatory rules qualifies as Tier II capital. This subordinated debt issuance increased the total risk-based capital ratio by 160 basis points.
As of March 31,June 30, 2020, the Company has originated $570.9 million in PPP loans 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 PPP Facility from average total assets when calculating its leverage ratio, while PPP loans that are not pledged as collateral to the PPP Facility will be included. The PPP loans originated by the Company are included in our leverage ratio as of June 30, 2020, as we did not utilize the PPP Facility
As of June 30, 2020, First Commonwealth and First Commonwealth Bank met all capital adequacy requirements to which they are subject and was considered well-capitalized under the regulatory rules, all on a fully phased-in basis. To be considered well capitalized, the Company must maintain minimum Total risk-based capital, Tier I risk-based capital, Tier I leverage ratio and Common equity tier I risk-based capital as set forth in the table below:
ActualMinimum Capital RequiredRequired to be Considered Well Capitalized ActualMinimum Capital RequiredRequired to be Considered Well Capitalized
Capital
Amount
RatioCapital
Amount
RatioCapital
Amount
Ratio Capital
Amount
RatioCapital
Amount
RatioCapital
Amount
Ratio
(dollars in thousands) (dollars in thousands)
Total Capital to Risk Weighted AssetsTotal Capital to Risk Weighted AssetsTotal Capital to Risk Weighted Assets
First Commonwealth Financial CorporationFirst Commonwealth Financial Corporation$971,738  14.18 %$719,609  10.50 %$685,342  10.00 %First Commonwealth Financial Corporation$989,978  14.40 %$721,630  10.50 %$687,267  10.00 %
First Commonwealth BankFirst Commonwealth Bank937,443  13.71  718,146  10.50  683,948  10.00  First Commonwealth Bank954,739  13.92  720,060  10.50  685,771  10.00  
Tier I Capital to Risk Weighted AssetsTier I Capital to Risk Weighted AssetsTier I Capital to Risk Weighted Assets
First Commonwealth Financial CorporationFirst Commonwealth Financial Corporation$792,334  11.56 %$582,541  8.50 %$548,274  8.00 %First Commonwealth Financial Corporation$807,280  11.75 %$584,177  8.50 %$549,814  8.00 %
First Commonwealth BankFirst Commonwealth Bank758,039  11.08  581,356  8.50  547,159  8.00  First Commonwealth Bank772,041  11.26  582,906  8.50  548,617  8.00  
Tier I Capital to Average AssetsTier I Capital to Average AssetsTier I Capital to Average Assets
First Commonwealth Financial CorporationFirst Commonwealth Financial Corporation$792,334  9.90 %$320,206  4.00 %$400,258  5.00 %First Commonwealth Financial Corporation$807,280  9.28 %$347,900  4.00 %$434,874  5.00 %
First Commonwealth BankFirst Commonwealth Bank758,039  9.49  319,576  4.00  399,470  5.00  First Commonwealth Bank772,041  8.90  347,151  4.00  433,938  5.00  
Common Equity Tier I to Risk Weighted AssetsCommon Equity Tier I to Risk Weighted AssetsCommon Equity Tier I to Risk Weighted Assets
First Commonwealth Financial CorporationFirst Commonwealth Financial Corporation$722,334  10.54 %$479,739  7.00 %$445,472  6.50 %First Commonwealth Financial Corporation$737,280  10.73 %$481,087  7.00 %$446,724  6.50 %
First Commonwealth BankFirst Commonwealth Bank758,039  11.08  478,764  7.00  444,566  6.50  First Commonwealth Bank772,041  11.26  480,040  7.00  445,751  6.50  
On AprilJuly 28, 2020, First Commonwealth Financial Corporation declared a quarterly dividend of $0.11 per share payable on May 22,August 21, 2020 to shareholders of record as of May 8,August 7, 2020. The timing and amount of future dividends are at the discretion of First Commonwealth's Board of Directors based upon, among other factors, capital levels, asset quality, liquidity and current and projected earnings.
On March 4, 2019, a share repurchase program was authorized by the Board of Directors for up to an additional $25.0 million in shares of the Company's common stock. As of March 31,June 30, 2020, 761,558 common shares were repurchased at an average price
67

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


of $12.30 per share. In March 2020, as a result of the COVID-19 pandemic, the Company temporarily suspended the share repurchase program.
New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which amends the guidance for recognizing credit losses from an “incurred loss” methodology that delays recognition of credit losses until it is probable a loss has been incurred to an expected credit loss methodology. The Current Expected Credit Loss ("CECL") methodology requires the use of the modified retrospective transition method by means of a one-time cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted.
The standard is effective for the Company as of January 1, 2020, however, on March 27, 2020, the CARES Act was signed into law, providing banking organizations with optional, temporary relief from implementing CECL until the earlier of the date on which the national emergency related to COVID-19 ends or December 31, 2020. As provided by the CARES Act, the Company has elected to delay its adoption of CECL as a result of the uncertainty and volatility around economic forecasts.
During our implementation process, we established a CECL implementation team, which includes members from the finance and credit areas, with oversight by the Chief Executive Officer, Chief Financial Officer and Chief Credit Officer. In the fourth quarter of 2018, a third party was engaged to assist with evaluation of data and methodologies related to this standard.
As part of its process of adopting CECL, Management implemented a third party software solution and determined appropriate loan segments, methodologies, model assumptions and qualitative components. Our implementation plan also included the assessment and documentation of appropriate processes, policies and internal controls. Refinement and completion of this documentation was completed during the first quarter of 2020. Additionally, Management engaged a third party to perform a model validation, which was completed during the fourth quarter of 2019 and first quarter of 2020.
55

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


Parallel runs were completed beginning with the third quarter of 2019 incorporating operational procedures and internal controls. Based on the composition, characteristics and quality of our loan portfolio as well as prevailing economic conditions and forecasts as of the January 1, 2020 adoption date, we expect that ASU 2016-13 will result in an increase of approximately 20% - 30% to our December 31, 2019 allowance for credit losses of $51.6 million.
In addition, ASU 2016-13 amends the accounting for credit losses on certain debt securities. Based upon the nature and characteristics of our securities portfolio at the adoption date, management will not record any allowance for credit losses on its debt securities as a result of adopting ASU 2016-13.



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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
Information appearing in Item 2 of this report under the caption “Market Risk” is incorporated by reference in response to this item.
ITEM 4. Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms of the Securities and Exchange Commission.
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PART II – OTHER INFORMATION
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

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

ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed in ourunder Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 exceptand Part II, Item 1A of the Company's Quarterly Report on Form 10-Q for the following risk factor.

The COVID-19 pandemic has adversely impacted our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities. As a result, the demand for our products and services may be significantly impacted, which could adversely affect our revenue. Furthermore, the pandemic could continue to result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, the impact on the global economy worsens, or more customers draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize impairments on the securities we hold as well as reductions in other comprehensive income. Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic, and we have already temporarily closed certain of our branches and offices. In response to the pandemic, we have also suspended residential property foreclosure sales and involuntary automobile repossessions, and are offering fee waivers, payment deferrals, and other expanded assistance for credit card, automobile, mortgage, small business and consumer lending customers, and future governmental actions may require these and other types of customer-related responses. In addition, we have temporarily suspended share repurchases and could take other capital actions in response to the COVID-19 pandemic. The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.quarter ended March 31, 2020.



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Table of Contents
PART II – OTHER INFORMATION
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
        
        On March 4, 2019, a share repurchase program was authorized for up to $25.0 million in shares of the Company's common stock. The following table details the amount of shares repurchased under this program during the first quarter of 2020:
Month Ending:Total Number of
Shares
Purchased
Average Price
Paid per Share
(or Unit)
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number
of Shares that
May Yet Be
Purchased Under
the Plans or
Programs*
January 31, 20208,550  $13.57  —  1,470,127  
February 29, 2020159,775  13.33  —  1,503,902  
March 31, 2020199,287  10.62  —  1,710,022  
Total367,612  $11.87  —  
* Remaining number of shares approved under the Plan is based on the market value of the Company's common stock of $13.52 at January 31, 2020, $11.80 at February 29, 2020 and $9.14 at March 31, 2020.  
None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
        None

ITEM 4. MINE SAFETY DISCLOSURES
        Not applicable

ITEM 5. OTHER INFORMATION
        None
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PART II – OTHER INFORMATION
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 6.     EXHIBITS
Exhibit
Number
  Description  Incorporated by Reference to
Filed herewith
Filed herewith
    Filed herewith
    Filed herewith
    Filed herewith
    Filed herewith
101  The following materials from First Commonwealth Financial Corporation’s Quarterly Report on Form 10-Q, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to Unaudited Consolidated Financial Statements. Note that XBRL tags are embedded within the document.
  Filed herewith

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FIRST COMMONWEALTH FINANCIAL CORPORATION
(Registrant)
 
DATED: May 8,August 7, 2020 /s/ T. Michael Price
 
T. Michael Price
President and Chief Executive Officer
DATED: May 8,August 7, 2020 /s/ James R. Reske
 James R. Reske
Executive Vice President, Chief Financial Officer and Treasurer

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