UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 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)

Pennsylvania		25-1428528
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
601 Philadelphia Street
Indiana	PA	15701
(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 November 5, 2020, was 96,132,751.

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q

INDEX

		PAGE
PART I.	Financial Information
ITEM 1.	Financial Statements and Supplementary Data
	Included in Part I of this report:
	First Commonwealth Financial Corporation and Subsidiaries
	Consolidated Statements of Financial Condition (Unaudited)	3
	Consolidated Statements of Income (Unaudited)	4
	Consolidated Statements of Comprehensive Income (Unaudited)	5
	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	6
	Consolidated Statements of Cash Flows (Unaudited)	8
	Notes to the Unaudited Consolidated Financial Statements	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	72
ITEM 4.	Controls and Procedures	72
PART II.	Other Information
ITEM 1.	Legal Proceedings	73
ITEM 1A.	Risk Factors	73
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
ITEM 3.	Defaults Upon Senior Securities	73
ITEM 4.	Mine Safety Disclosures	73
ITEM 5.	Other Information	73
ITEM 6.	Exhibits	74
	Signatures	75

2

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)

	September 30, 2020		December 31, 2019
	(dollars in thousands, except share data)
Assets
Cash and due from banks	$	97,060	$	102,346
Interest-bearing bank deposits	283,037		19,510
Securities available for sale, at fair value	908,236		902,292
Securities held to maturity, at amortized cost (Fair value of $276,988 and $338,718 at September 30, 2020 and December 31,2019, respectively)	268,638		337,123
Other investments	12,966		16,761
Loans held for sale	37,998		15,989
Loans:
Portfolio loans	6,949,716		6,189,148
Allowance for credit losses	(88,307)		(51,637)
Net loans	6,861,409		6,137,511
Premises and equipment, net(1)	128,041		137,268
Other real estate owned	1,079		2,228
Goodwill	303,328		303,328
Amortizing intangibles, net	14,095		16,366
Bank owned life insurance	224,660		220,723
Other assets	148,819		97,328
Total assets	$	9,289,366	$	8,308,773
Liabilities
Deposits (all domestic):
Noninterest-bearing	$	2,301,821	$	1,690,247
Interest-bearing	5,402,086		4,987,368
Total deposits	7,703,907		6,677,615
Short-term borrowings	122,356		201,853
Subordinated debentures	170,572		170,450
Other long-term debt	56,424		56,917
Capital lease obligation	6,494		6,815
Total long-term debt	233,490		234,182
Other liabilities	156,782		139,458
Total liabilities	8,216,535		7,253,108
Shareholders’ Equity
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 September 30, 2020 and December 31, 2019, and 96,924,781 and 98,311,840 shares outstanding at September 30, 2020 and December 31, 2019, respectively	113,915		113,915
Additional paid-in capital	494,682		493,737
Retained earnings	592,704		577,348
Accumulated other comprehensive income, net	19,111		5,579
Treasury stock (16,990,121 and 15,603,062 shares at September 30, 2020 and December 31, 2019, respectively)	(147,581)		(134,914)
Total shareholders’ equity	1,072,831		1,055,665
Total liabilities and shareholders’ equity	$	9,289,366	$	8,308,773

(1)September 30, 2020 balance includes $2.6 million in available for sale assets as a result of the branch consolidation initiative.

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

3

ITEM 1. Financial Statements and Supplementary Data (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
	(dollars in thousands, except share data)
Interest Income
Interest and fees on loans	$	67,474	$	74,714	$	207,290	$	218,524
Interest and dividends on investments:
Taxable interest	5,598		6,995		19,064		22,871
Interest exempt from federal income taxes	268		398		850		1,231
Dividends	159		387		536		1,419
Interest on bank deposits	94		81		163		181
Total interest income	73,593		82,575		227,903		244,226
Interest Expense
Interest on deposits	4,621		9,846		18,756		27,298
Interest on short-term borrowings	35		1,620		670		8,075
Interest on subordinated debentures	2,146		2,232		6,434		6,930
Interest on other long-term debt	356		362		1,065		656
Interest on lease obligations	66		70		199		210
Total interest expense	7,224		14,130		27,124		43,169
Net Interest Income	66,369		68,445		200,779		201,057
Provision for credit losses	11,212		2,708		49,038		9,638
Net Interest Income after Provision for Credit Losses	55,157		65,737		151,741		191,419
Noninterest Income
Net securities gains	20		9		47		15
Trust income	2,554		2,325		6,774		6,221
Service charges on deposit accounts	4,035		4,954		12,066		13,792
Insurance and retail brokerage commissions	2,156		1,912		5,982		5,887
Income from bank owned life insurance	1,547		1,540		4,963		4,408
Gain on sale of mortgage loans	6,437		2,599		13,226		6,101
Gain on sale of other loans and assets	1,871		970		3,151		3,831
Card-related interchange income	6,441		5,629		17,589		15,800
Derivatives mark to market	(160)		(45)		(2,122)		(88)
Swap fee income	41		421		864		1,634
Other income	1,827		1,865		5,314		5,356
Total noninterest income	26,769		22,179		67,854		62,957
Noninterest Expense
Salaries and employee benefits	28,823		28,674		87,573		83,205
Net occupancy	4,609		4,521		13,979		13,878
Furniture and equipment	4,033		3,904		11,468		11,396
Data processing	2,741		2,825		7,804		7,988
Advertising and promotion	1,115		1,140		3,800		3,611
Pennsylvania shares tax	1,254		1,189		3,246		3,365
Intangible amortization	939		865		2,792		2,364
Other professional fees and services	937		969		2,755		2,755
FDIC insurance	876		35		1,637		1,164
Loss on sale or write-down of assets	63		152		416		1,398
Litigation and operational losses	329		308		1,038		1,264
Merger and acquisition related	—		3,738		—		3,772
COVID-19 related	125		—		567		—
Voluntary early retirement	3,304		—		3,304		—
Branch consolidation	2,544		—		2,544		—
Other operating	6,555		6,577		18,351		20,696
Total noninterest expense	58,247		54,897		161,274		156,856
Income Before Income Taxes	23,679		33,019		58,321		97,520
Income tax provision	4,493		6,375		10,557		19,007
Net Income	$	19,186	$	26,644	$	47,764	$	78,513
Average Shares Outstanding	97,917,096		98,267,229		97,990,749		98,363,539
Average Shares Outstanding Assuming Dilution	98,160,143		98,547,898		98,224,506		98,615,787
Per Share Data: Basic Earnings per Share	$	0.20	$	0.27	$	0.49	$	0.80
Diluted Earnings per Share	$	0.20	$	0.27	$	0.49	$	0.80
Cash Dividends Declared per Common Share	$	0.11	$	0.10	$	0.33	$	0.30

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

4

ITEM 1. Financial Statements and Supplementary Data (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
	(dollars in thousands)
Net Income	$	19,186	$	26,644	$	47,764	$	78,513
Other comprehensive (loss) income, before tax benefit (expense):
Unrealized holding (losses) gains on securities arising during the period	(3,256)		3,152		22,069		22,055
Less: reclassification adjustment for gains on securities included in net income	(20)		(9)		(47)		(15)
Unrealized holding gains (losses) on derivatives arising during the period	225		(124)		(4,892)		9
Total other comprehensive (loss) income, before tax benefit (expense)	(3,051)		3,019		17,130		22,049
Income tax benefit (expense) related to items of other comprehensive (loss) income	640		(635)		(3,598)		(4,631)
Total other comprehensive (loss) income	(2,411)		2,384		13,532		17,418
Comprehensive Income	$	16,775	$	29,028	$	61,296	$	95,931

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

5

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 December 31, 2019	98,311,840	$	113,915	$	493,737	$	577,348	$	5,579	$	(134,914)	$	1,055,665
Net income						47,764						47,764
Other comprehensive income								13,532				13,532
Cash dividends declared ($0.33 per share)						(32,408)						(32,408)
Treasury stock acquired	(1,638,812)									(14,373)		(14,373)
Treasury stock reissued	158,453			458		—				1,358		1,816
Restricted stock	93,300	—		487		—				348		835
Balance at September 30, 2020	96,924,781	$	113,915	$	494,682	$	592,704	$	19,111	$	(147,581)	$	1,072,831

	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 December 31, 2018	98,518,668	$	113,915	$