FIRST COMMONWEALTH FINANCIAL CORP /PA/ (FCF) FY 2023 MD&A

ITEM 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis represents an overview of the financial condition and the results of operations of First Commonwealth, and its subsidiaries, as of and for the years ended December 31, 2023, and 2022. The purpose of this discussion is to focus on information concerning our financial condition and results of operations that is not readily apparent from the Consolidated Financial Statements. In order to obtain a more thorough understanding of this discussion, you should refer to the Consolidated Financial Statements, the notes thereto and to other financial information presented in this Annual Report. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the SEC on February 28, 2023 for a discussion and analysis of the factors that affected periods prior to 2023.

Company Overview

First Commonwealth provides a diversified array of consumer and commercial banking services through our bank subsidiary, FCB. We also provide trust and wealth management services through FCB and insurance products through FCIA. At December 31, 2023, FCB operated 126 community banking offices throughout Pennsylvania and Ohio, as well as loan production offices in Harrisburg, Pennsylvania, and Cleveland, Columbus, Canton, Canfield and Hudson, Ohio.

Our consumer services include Internet, mobile and telephone banking, an automated teller machine network, personal checking accounts, interest-earning checking accounts, savings accounts, health savings accounts, insured money market accounts, debit cards, investment certificates, fixed and variable rate certificates of deposit, mortgage loans, secured and unsecured installment loans, construction and real estate loans, safe deposit facilities, credit cards, credit lines with overdraft checking protection and IRA accounts. Commercial banking services include commercial lending and leasing, small and high-volume business checking accounts, on-line account management services, ACH origination, payroll direct deposit, commercial cash management services and repurchase agreements. We also provide a variety of trust and asset management services and a full complement of auto, home and business insurance as well as term life insurance. We offer annuities, mutual funds and stock and bond brokerage services through an arrangement with a broker-dealer and insurance brokers. Most of our commercial customers are small and mid-sized businesses in Pennsylvania and Ohio.

As a financial institution with a focus on traditional banking activities, we earn the majority of our revenue through net interest income, which is the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth and maintaining or increasing our net interest margin, which is net interest income (on a fully taxable-equivalent basis) as a percentage of our average interest-earning assets. We also generate revenue through fees earned on various services and products that we offer to our customers and, less frequently, through sales of assets, such as loans, investments or properties. These revenue sources are offset by provisions for credit losses on loans, operating expenses and income taxes.

General economic conditions also affect our business by impacting our customers’ need for financing, thus affecting loan growth, as well as impacting the credit strength of existing and potential borrowers.

Critical Accounting Policies and Significant Accounting Estimates

First Commonwealth’s accounting and reporting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and predominant practice in the banking industry. The preparation of financial statements in accordance with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. Over time, these estimates, assumptions and judgments may prove to be inaccurate or vary from actual results and may significantly affect our reported results and financial position for the period presented or in future periods. We currently view the determination of the allowance for credit losses and business combinations to be critical because they are highly dependent on subjective or complex judgments, assumptions and estimates made by management.

Allowance for Credit Losses

We account for the credit risk associated with our lending activities through the allowance and provision for credit losses. The allowance represents management’s best estimate of expected losses in our existing loan and lease portfolio as of the balance sheet date. The provision is a periodic charge to earnings in an amount necessary to maintain the allowance at a level that is appropriate based on management’s assessment of expected losses. Management determines and reviews with the Board of Directors the appropriateness of the allowance on a quarterly basis in accordance with the methodology described below.

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

31

Table of Contents

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

•Loans that do not have the same risks and characteristics of the loan pools are individually reviewed. These are generally large balance commercial loans and commercial mortgages that are rated less than “satisfactory” based on our internal credit-rating process.

•We assess whether the loans identified for review are “nonperforming”. This means it is expected that all amounts will not be collected according to the contractual terms of the loan agreement, which generally represents loans that management has placed on nonaccrual status.

•For individually analyzed loans we calculate the estimated fair value of the loans that are selected for review based on observable market prices, discounted cash flows or the value of the underlying collateral and record an allowance if needed.

•We then review the results to determine the appropriate balance of the allowance for credit losses. This review includes consideration of additional factors, such as the mix of loans in the portfolio, the balance of the allowance relative to total loans and nonperforming assets, trends in the overall risk profile in the portfolio, trends in delinquencies and nonaccrual loans, and local and national economic information and industry data, including trends in the industries we believe are higher risk.

There are many factors affecting the allowance for credit losses; some are quantitative, while others require qualitative judgment. These factors require the use of estimates related to the amount and timing of expected future cash flows, appraised values on nonperforming loans, estimated losses for each loan category based on historical loss experience, forecasts of economic trends and conditions, all of which may be susceptible to significant judgment and change. To the extent that actual outcomes differ from estimates, additional provisions for credit losses could be required that could adversely affect our earnings or financial position in future periods.

As noted above, the allowance for credit losses is estimated using a number of inputs and assumptions. Management's sensitivity analysis of the allowance identified that the model has the highest degree of sensitivity around values used in the economic forecast, specifically national unemployment and gross domestic product. Additionally, there is also a high degree of sensitivity related to estimated prepayment speeds as it is a major driver for the life of loan expectations. The sensitivity of estimated prepayment speeds had the largest impact on the residential first lien loan pool.

Business Combinations

Business combinations are accounted for by applying the acquisition method of accounting. All identifiable assets and acquired, including loans, and liabilities assumed are measured at fair value and recognized separately from goodwill. Determining the fair value of assets and liabilities often involve estimates based on third party valuations or internal valuations, both of which include estimates and significant judgements by management. Results of operations of the acquired entities are included in the Consolidated Statements of Income from the date of acquisition.

Core deposits intangibles are calculated using a discounted cash flow model based on various factors including account retention, discount rate, attrition rate, deposit interest rates, deposit maintenance costs and alternative funding costs.

Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value with no carryover of related allowance for credit losses. Acquired loans are classified into two categories; purchased credit deteriorated ("PCD") loans and non-purchased credit deteriorated ("non-PCD") loans. PCD loans are defined as a loan or group of loans that have experienced more than insignificant credit deterioration since origination. Non-PCD loans will have an allowance for credit losses established on acquisition date, which is recognized in the current period provision for credit losses. For PCD loans, an allowance for credit losses is recognized on day 1 by adjusting the fair value of the loan, which is the “Day 1 amortized cost”. There is no credit loss expense recognized on PCD loans because the initial allowance for credit losses is established by grossing-up the amortized cost of the PCD loan. Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life of the acquired loans, delinquency status, estimated prepayments, internal risk grade, estimated value of the underlying collateral and interest rate environment.

32

Table of Contents

Selected Financial Information

The following table provides selected financial information for the periods ended December 31,

Results for 2020 through 2023 reflect accounting for the allowance for credit losses under the current expected credit loss methodology, while results prior to 2020 reflect accounting under the incurred methodology.

Results of Operations—2023 Compared to 2022

Net Income

Net income for 2023 was $157.1 million, or $1.54 per diluted share, as compared to net income of $128.2 million, or $1.37 per diluted share in 2022. The increase in net income was the result of an increase of $73.5 million in net interest income and a $16.9 million decrease in provision for credit losses, excluding the $10.7 million in provision expense related to the day 1

33

Table of Contents

adjustment on non-PCD loans acquired in the Centric acquisition. Partially offsetting these positive changes was an increase of $40.3 million in noninterest expense and a decrease of $2.1 million in noninterest income.

Our return on average equity was 12.8% and our return on average assets was 1.42% for 2023, compared to 12.0% and 1.34%, respectively, for 2022.

Average diluted shares for the year 2023 were 8% more than the comparable period in 2022 primarily due to $141.4 million in common stock issued as part of the Centric acquisition, offset by $15.1 million of common stock buybacks completed during 2023.

Net Interest Income

Net interest income, which is our primary source of revenue, is the difference between interest income from earning assets (loans and securities) and interest expense paid on liabilities (deposits, short-term borrowings and long-term debt). The amount of net interest income is affected by both changes in the level of interest rates and the amount and composition of interest-earning assets and interest-bearing liabilities. The net interest margin is expressed as the percentage of net interest income, on a fully taxable equivalent basis, to average interest-earning assets. To compare the tax exempt asset yields to taxable yields, amounts are adjusted to the pretax equivalent amounts based on the marginal corporate federal income tax rate of 21%. The taxable equivalent adjustment to net interest income for 2023 was $1.2 million compared to $1.0 million in 2022. Net interest income comprises a majority of our revenue (net interest income before provision expense plus noninterest income) at 80% and 76% for the years ended December 31, 2023 and 2022, respectively.

Net interest income, on a fully taxable equivalent basis, was $386.9 million for the year-ended December 31, 2023, a $73.6 million, or 24%, increase compared to $313.3 million for the same period in 2022. The net interest margin, on a fully taxable equivalent basis, increased 23 basis points to 3.81% in 2023 from 3.58% in 2022. The net interest margin is affected by both changes in the level of interest rates and the amount and composition of interest-earning assets and interest-bearing liabilities.

The impact of growth in interest-earning assets in 2023 was further impacted by the effect of the mix of the asset growth and higher interest rates, resulting in an increase in the net interest margin for the year ended December 31, 2023. Average earning assets for the year ended December 31, 2023 increased $1.4 billion, or 16%, compared to the year ended December 31, 2022. Ending balances of interest earning assets acquired as part of the Centric acquisition totaled $965.5 million. The change in the volume of interest-earning assets and interest-bearing liabilities positively increased net interest income by $55.9 million in the year ended December 31, 2023 compared to the same period in 2022, and changes in rates positively impacted net interest income by $17.7 million. Interest-sensitive assets totaling $5.1 billion will either reprice or mature over the next twelve months.

The taxable equivalent yield on interest-earning assets was 5.23% for the year ended December 31, 2023, an increase of 144 basis points from the 3.79% yield for the same period in 2022. This change is the result of a higher interest rate environment in 2023 and resulted in the loan and leases portfolio yield increasing by 141 basis points compared to the prior year. Contributing to this increase was the yield on our adjustable and variable rate commercial loan portfolios, which increased by 227 basis points. During 2023, the Federal Reserve increased short-term interest rates by 100 basis points. Additionally, nine basis points of the increase in the yield on interest-earning assets can be attributed to the recognition of $9.1 million in accretion of the purchase accounting marks, primarily from the Centric acquisition.

As of December 31, 2023, 51% of our loan portfolio had variable or adjustable interest rates and 49% had fixed interest rates. After incorporating the impact of our cash flow hedges that convert the interest rate on $500.0 million of our 1-month Secured Overnight Financing Rate ("SOFR") based loans to fixed rates, the variable and adjustable interest rates would account for 46% of our loan portfolio. Loans with variable or adjustable interest rates include approximately 15% tied to the prime interest rate, 20% tied to SOFR, 6% tied to Treasury rates, 5% tied to Federal Home Loan Bank rates, 3% tied to swap rates and 3% tied to BSBY.

Also contributing to the increase in yield on interest-earning assets was the yield on the investment portfolio, which increased by 48 basis points compared to the prior year, primarily as new volume rates were higher than the portfolio yield. The average investment portfolio balance decreased $118.0 million as maturities and runoff funded loan growth. The yield on interest-bearing deposits with banks increased 448 basis points compared to the prior year as a result of higher interest rates while the average balance decreased $12.2 million.

Increases in the cost of interest-bearing liabilities partially offset the positive impact of higher yields on interest-earning assets. The cost of interest-bearing liabilities was 2.03% for the year ended December 31, 2023, compared to 0.31% for the same period in 2022. The increase of 161 basis points in the cost of interest-bearing deposits can be attributed to higher market interest rates and changes in the mix of deposits as customers moved funds to take advantage of the increased rates offered on money market accounts and time deposits. Average time deposits increased $620.1 million, or 175.9%, with an increase in the

34

Table of Contents

cost of these deposits of 294 basis points. Contributing to the average growth in time deposits was an average of $84.9 million related to the Centric acquisition. Other interest-bearing deposits increased an average of $537.3 million, or 10.8%, increasing the cost of deposits 135 basis points. Contributing to the growth in average other interest-bearing deposits was an average of $341.0 million of interest-bearing deposits related to the Centric acquisition.

The cost of short-term borrowings increased 357 basis points in comparison to the same period in the prior year. Average short-term borrowings increased by $294.7 million for the year ended December 31, 2023 compared to the same period in 2022. Average long-term debt increased $5.0 million, while the cost of long-term debt increased by 49 basis points primarily due to increasing rates on the variable rate portion of the subordinated debentures.

Comparing the year ended December 31, 2023 with the same period in 2022, changes in rates positively impacted net interest income by $17.7 million. The higher yield on interest-earning assets increased net interest income by $137.3 million, while the change in the cost of interest-bearing liabilities negatively impacted net interest income by $119.6 million.

Changes in the volume of interest-earning assets and interest-bearing liabilities positively increased net interest income by $55.9 million in the year ended December 31, 2023 compared to the same period in 2022. Higher levels of interest-earning assets resulted in an increase of $62.9 million in interest income, and changes in the volume and mix of interest-bearing liabilities increased interest expense by $7.0 million, primarily due to increases in short-term borrowings and time deposits.

Net interest income was negatively impacted by a decrease of $45.3 million in average net free funds at December 31, 2023 as compared to December 31, 2022. Average net free funds are the excess of noninterest-bearing demand deposits, other noninterest-bearing liabilities and shareholders’ equity over noninterest-earning assets. The lower level of net free funds was primarily the result of lower noninterest-bearing demand deposits as customers became more rate sensitive in the increasing rate environment and an increase in noninterest-earning assets, largely due to the Centric acquisition.

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 periods presented:

35

Table of Contents

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

(a)Income on interest-earning assets has been computed on a fully taxable equivalent basis using the federal income tax statutory rate of 21%.

(b)Income on nonaccrual loans is accounted for on the cash basis, and the loan balances are included in interest-earning assets.

(c)Loan income includes loan fees.

(d)Average balances do not include reallocations from noninterest-bearing demand deposits and interest-bearing demand deposits into savings deposits which were made for regulatory purposes.

(e)Includes held for sale loans.

36

Table of Contents

The following table sets forth certain information regarding changes in net interest income attributable to changes in the volume of interest-earning assets and interest-bearing liabilities and changes in the rates for the periods indicated:

(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 to provide for expected losses inherent in the loan and lease portfolio and on off-balance sheet commitments. The provision for credit losses is an amount added to the allowance against which credit losses are charged.

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

The provision for credit losses on loans and leases for 2023 totaled $14.8 million, including $10.7 million recognized as the day 1 non-PCD provision expense related to the Centric acquisition. Provision expense in 2023 was a decrease of $6.3 million compared to the $21.1 million provision recognized in 2022. The decrease is a result of a $10.4 million decline in the calculated provision for outstanding loans and leases due to improvements in economic variables considered in the calculation as well as a $6.5 million decrease in the provision for off-balance sheet commitments. The negative provision for off-balance sheet commitments was the result of lower off-balance sheet commitments related to construction loans and improvement in the economic variables considered in the calculation.

Provision expense for the commercial, financial, agricultural and other category was impacted by an increase of $1.8 million in provision expense related to the equipment finance portfolio, which accounted for $153.3 million of the $331.6 million growth in outstanding balances for this loan category. Also, impacting provision expense were net charge-offs of $3.9 million, for which the allowance was not provided for in prior periods or through PCD purchase accounting marks. Provision expense for the commercial real estate category was impacted by a $4.3 million charge off related to one borrower and an increase in general reserves due to $628.1 million in loan growth. Increase in the residential real estate category is due primarily to $222.2 million in loan growth. Net charge-offs related to loans to individuals were $5.0 million for the year ended December 31, 2023, including $3.8 million for indirect auto loans and $1.1 million related to other consumer loans. The provision expense for loans to individuals was also impacted by growth in the portfolio of $60.0 million.

37

Table of Contents

The table below provides a breakout of the provision for credit losses by loan category for the years ended December 31:

The allowance for credit losses was $117.7 million, or 1.31%, of total loans and leases outstanding at December 31, 2023, compared to $102.9 million, or 1.35%, at December 31, 2022. Nonperforming loans as a percentage of total loans decreased to 0.44% at December 31, 2023 from 0.46% at December 31, 2022. The allowance to nonperforming loan ratio was 298.2% as of December 31, 2023 and 290.0% at December 31, 2022. Net charge-offs were $30.2 million for the year ended December 31, 2023 compared to $7.1 million for the same period in 2022, an increase of $23.0 million. During 2023, $17.0 million in charge-offs were recognized related to loans acquired through the Centric acquisition. These loans were considered PCD loans for which $14.3 million were provided for as part of the day 1 provision. In addition, a $4.3 million charge-off was recognized on one commercial real estate relationship.

Management believes that the allowance for credit losses is at a level deemed appropriate to absorb expected losses inherent in the loan portfolio at December 31, 2023.

38

Table of Contents

A detailed analysis of our credit loss experience for the previous five years is shown below:

39

Table of Contents

Noninterest Income

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

Noninterest income, excluding net securities (losses) gains, gain on sale of mortgage loans, gain on sale of other loans and assets and the derivatives mark to market, decreased $1.0 million, or 1%, in 2023. This decrease is primarily due to swap fee income, which declined $3.2 million due to a lower volume of interest rates swaps entered into for our commercial customers. Other income decreased $0.9 million largely due to income related to limited partnership investments and income from bank owned life insurance decreased $0.6 million due to changes in market interest rates. Partially offsetting these decreases were service charges on deposit accounts which increased $1.8 million, of which $0.3 million can be attributed to the Centric acquisition with the remainder due to increased customer activity. Card-related interchange income increased $1.0 million, primarily due to higher customer activity, with $0.2 million of the increase attributable to the Centric acquisition. Also, insurance and retail brokerage commissions increased as a result of higher annuity sales.

Total noninterest income decreased $2.1 million, or 2%, in comparison to the year ended December 31, 2022. The most significant change, other than the changes noted above, includes a decrease of $1.3 million in gain on sale of mortgage loans due to a decline in volume and spread received on mortgage loans sold. The mark to market adjustment on interest rate swaps entered into for our commercial loan customers decreased $0.4 million. This adjustment does not reflect a realized gain or loss on the swaps, but rather relates to a change in fair value due to movements in corporate bond spreads and swap rates as well as changes in counterparty credit risk. Partially offsetting these decreases is an increase in gain on sale of other loans and assets of $0.7 million due to increased volume of loans sold, primarily SBA loans, in comparison to the prior year. For 2023, $1.1 million in total noninterest income can be attributed to the Centric Acquisition.

The Company's total assets exceeded $10.0 billion as of December 31, 2023; therefore, beginning July 1, 2024 we are subject to the interchange fee cap included in the Dodd-Frank Act. We estimate the application of the interchange fee cap to decrease our interchange income by approximately $7.5 million in 2024 and to decrease our annual interchange income by approximately $14.9 million in 2025.

40

Table of Contents

Noninterest Expense

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

Total noninterest expense increased $40.3 million, or 18%, compared to the year ended December 31, 2022. Contributing to this change is the recognition of $9.0 million in merger and acquisition associated with the Centric acquisition. Also contributing to the increase in noninterest expense is a $16.8 million increase in salaries and employee benefits primarily due to the number of full-time equivalent employees, which increased from 1,424 at December 31, 2022 to 1,475 at December 31, 2023, largely due to the Centric acquisition. Also contributing the higher salaries and benefits expense is an increase of $3.5 million in hospitalization expense as a result of the increase in full-time employees and higher claims in 2023. The $1.8 million increase in intangible amortization is related to amortization of Centric's core deposit intangible. Net occupancy expense increased $1.2 million due to higher building repairs and maintenance costs as properties acquired in the Centric acquisition resulted in expense of $1.8 million for the year ended December 31, 2023. Data processing costs increased $1.1 million due to continued investment in our digital banking and other product offerings. FDIC insurance increased $3.4 million due to the impact of the Centric acquisition as well as a 2 basis point increase in the FDIC deposit insurance assessment rate, which began in the first quarterly assessment period of 2023. Contributing to the $3.6 million increase in other operating expenses was a $0.6 million increase in other bank fees as a result of the purchase of letters of credit from FHLB in order to secure public deposits and increase the Company's liquidity position. Other areas contributing to the increase in other operating expense including other professional fees, printing, postage and travel, none of which were individually significant.

Income Tax

The provision for income taxes of $40.5 million in 2023 reflects an increase of $8.5 million compared to the provision for income taxes in 2022, as a result of a $37.4 million increase in the level of income before taxes.

The effective tax rate was 20.5% and 20.0% for tax expense in 2023 and 2022, respectively. We ordinarily generate an annual effective tax rate that is less than the statutory rate due to benefits resulting from tax-exempt interest, income from bank owned life insurance, and tax benefits associated with low income housing tax credits, all of which are relatively consistent regardless of the level of pretax income.

Financial Condition

First Commonwealth’s total assets increased $1.7 billion as of December 31, 2023 compared to December 31, 2022. The growth in total assets was impacted by the $1.0 billion in assets acquired as a result of the Centric acquisition on January 31, 2023. Loans and leases, including loans held for sale, increased $1.3 billion, or 18%, including $0.9 billion attributed to the loans acquired from Centric. Loan growth in 2023, excluding loans acquired from Centric, was experienced in all loan categories, with residential real estate and commercial real estate loans accounting for a majority of the growth. Investment securities increased $216.2 million, or 18% and cash and interest-bearing balances with banks decreased $7.3 million, or 5%.

41

Table of Contents

First Commonwealth’s total liabilities increased $1.4 billion, or 16%, in 2023. The growth in total liabilities was impacted by the $1.0 billion in liabilities acquired as a result of the Centric acquisition. Deposits increased $1.2 billion, of which $0.8 billion was assumed as part of the Centric acquisition, and short-term borrowings increased $225.1 million, or 60%. The increase in short-term borrowings provided liquidity necessary to fund loan growth and to purchase securities.

Total shareholders' equity increased $262.2 million in 2023. The growth in shareholders' equity was the result of net income of $157.1 million, $141.4 million in common stock issued in conjunction with the Centric acquisition and a $25.9 million increase in accumulated other comprehensive income, offset by $50.8 million in dividends declared and $15.1 million in stock repurchases.

Loan and Lease Portfolio

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

The following table shows a breakdown of our loan portfolio between loans originated and loans acquired through the Centric acquisition as of December 31, 2023:

(1) Includes January 31, 2023 balance of loans acquired as part of the Centric acquisition plus day 1 gross up of PCD loans.

The loan and lease portfolio totaled $9.0 billion as of December 31, 2023, reflecting growth of $1.3 billion, or 17%, compared to December 31, 2022. Excluding the impact of the Centric acquisition, the loan portfolio grew by $375.9 million, or 5% in comparison to the prior year and all loan categories experienced growth. Commercial, financial, agricultural and other loans increased $331.6 million, or 27%, of which $246.4 million can be attributed to Centric and $153.3 million is a result of growth in the equipment finance portfolio. Residential real estate loans increased $222.2 million, or 10%, $88.5 million of which was due to Centric, with the remainder primarily due to originations of first lien closed-end 1-4 family mortgage loans. Commercial real estate loans increased $628.1 million, or 26%, of which $534.1 million was acquired from Centric. Other growth in this category is primarily due to growth in non-owner occupied properties. Growth in the loans to individuals category of $60.0 million, or 5%, was the result of growth in indirect auto and recreational vehicle loans. Loans to individuals acquired from Centric totaled $0.7 million.

The majority of our loan and lease portfolio is with borrowers located in the states of Pennsylvania and Ohio. As of December 31, 2023 and 2022, there were no concentrations of loans relating to any industry in excess of 10% of total loans.

42

Table of Contents

Final loan maturities and rate sensitivities of the loan portfolio excluding consumer installment and mortgage loans at December 31, 2023 were as follows:

(a)The maturities of real estate construction loans include term commitments that follow the construction period. Loans with these term commitments will be moved to the commercial real estate category when the construction phase of the project is completed.

First Commonwealth has a legal lending limit of $183.3 million to any one borrower or closely related group of borrowers, but has established lower thresholds for credit risk management.

Commercial real estate comprises 34% of our total loan portfolio. The following table summarizes the commercial real estate portfolio by type of property securing the credit as December 31:

When calculating the allowance for credit losses the commercial real estate portfolio is segmented into three portfolio segments; multifamily, non-owner occupied and owner occupied. For additional information, including credit quality, related to these segments, see Note 9 "Loans and Leases and Allowance for Credit Losses" of the Consolidated Financial Statements.

Nonperforming Loans

Nonperforming loans include nonaccrual loans and restructured loans. Nonaccrual loans represent loans on which interest accruals have been discontinued. Restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the deteriorating financial position of the borrower under terms not available in the market.

We discontinue interest accruals on a loan when, based on current information and events, it is probable that we will be unable to fully collect principal or interest due according to the contractual terms of the loan. Consumer loans are placed in nonaccrual status at 150 days past due.  Other types of loans are typically placed in nonaccrual status when there is evidence of a significantly weakened financial condition or principal and interest is 90 days or more delinquent. Interest received on a

43

Table of Contents

nonaccrual loan is normally applied as a reduction to loan principal rather than interest income utilizing the cost recovery methodology of revenue recognition.

Nonperforming loans are closely monitored on an ongoing basis as part of our loan review and work-out process. The estimated credit loss on these loans is evaluated by comparing the loan balance to the fair value of any underlying collateral and the present value of projected future cash flows. Losses are recognized when a loss is expected and the amount is reasonably estimable.

The following is a comparison of nonperforming assets and the effects on interest due to nonaccrual loans for the period ended December 31:

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

(b)Does not include provision for credit losses on loans and leases - acquisition day 1 non-PCD.

Nonperforming loans increased $4.0 million to $39.5 million at December 31, 2023, compared to $35.5 million at December 31, 2022. The increase in nonperforming loans is primarily a result of $14.5 million in loans acquired from Centric. Offsetting this is the removal of $6.4 million in accruing TDR's as well as the transfer of $3.5 million commercial real estate relationship back to accruing status. The TDR's were eliminated as a result of our adoption of ASU 2022-02, Financial Instruments Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02") effective

44

Table of Contents

January 1, 2023. Nonperforming loans as a percentage of total loans decreased to 0.44% from 0.46% at December 31, 2023 compared to December 31, 2022.

Net charge-offs were $30.2 million in 2023 compared to $7.1 million for the year 2022. The most significant credit losses recognized during the year include $17.0 million in charge-offs related to the Centric acquisition. Net charge-offs in the commercial, financial, agricultural and other category totaled $18.7 million, of which $14.8 million were related to the Centric acquisition. Commercial real estate net charge-offs totaled $6.1 million primarily due to a $4.3 million charge-off recognized on one commercial real estate relationships and $1.9 million related to the Centric acquisition. Net charge-offs in the loans to individuals category totaled $5.0 million for 2023, primarily due to charge-offs of indirect auto loans. Additional detail on credit risk is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Provision for Credit Losses,” “Allowance for Credit Losses" and "Credit Risk.”

Provision for credit losses on loans and leases as a percentage of net charge-offs decreased to 23.6% for the year ended December 31, 2023 from 245.5% for the year ended December 31, 2022. This change was primarily driven by the $27.2 million credit loss recorded at acquisition of Centric PCD loans which increased the allowance for credit losses but did not impact the provision for credit losses. As previously noted, $17.0 million of net charge-offs in 2023 were related to the Centric acquisition and would have been provided for as part of the acquisition.

Allowance for Credit Losses

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

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

Effective January 1, 2020, the company adopted the CECL methodology of calculating the allowance for credit losses, which provides for expected losses over the life of a loan. Prior periods are reported in accordance with previously applicable GAAP and was calculated to provide for credit losses as they were incurred.

The allowance for credit losses increased $14.8 million from December 31, 2022 to December 31, 2023. The allowance for credit losses as a percentage of end-of-period loans and leases outstanding was 1.31% and 1.35% at December 31, 2023 and 2022, respectively. The allowance for credit losses includes both a general reserve for performing loans and reserves for individually analyzed loans. Comparing December 31, 2023 to December 31, 2022, the general reserve for performing loans is 1.26% and 1.34%, respectively, of total performing loans for both periods. Reserves for individually analyzed loans increased from 2.0% of nonperforming loans at December 31, 2022 to 11.5% of nonperforming loans at December 31, 2023. The allowance for credit losses as a percentage of nonperforming loans was 298.2% and 290.0% at December 31, 2023 and 2022, respectively.

The allowance for credit losses represents management’s estimate of expected losses in the loan portfolio at a specific point in time. This estimate includes losses associated with specifically identified loans, as well as estimated credit losses inherent in the remainder of the loan portfolio. Additions are made to the allowance through both periodic provisions charged to income and recoveries of losses previously incurred. Reductions to the allowance occur as loans are charged off. Management evaluates the appropriateness of the allowance at least quarterly, and in doing so relies on various factors including, but not limited to, assessment of historical loss experience, contractual payment schedules, prepayment estimates, calculated probability of default and loss given default estimates and forecasts of certain macroeconomic variables, such as unemployment, gross domestic product, housing price index as well as other macroeconomic variables. This evaluation is subjective and requires material estimates that may change over time. For a description of the methodology used to calculate the allowance for credit losses, please refer to “Critical Accounting Policies and Significant Accounting Estimates—Allowance for Credit Losses.”

45

Table of Contents

Investment Portfolio

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

Following is a detailed schedule of the amortized cost of securities available for sale as of December 31:

As of December 31, 2023, securities available for sale had a fair value of $1.0 billion. Gross unrealized gains were $8.2 million and gross unrealized losses were $125.6 million. The level of gross unrealized losses is directly related to the increase in market interest rates.

The securities available for sale portfolio increased $239.7 million, or 27%, as of December 31, 2023 compared to December 31, 2022, as investment securities became more attractive in the higher interest rate environment of 2023. Most of the growth in this portfolio was in the Mortgage-Backed Securities - Commercial category as these securities provide ongoing liquidity through regular principal paydowns and additionally can be pledged for borrowings or to secure public deposits.

The following is a schedule of the contractual maturity distribution of securities available for sale at December 31, 2023.

(a)Equities are excluded from this schedule because they have an indefinite maturity.

(b)Yields are calculated on a taxable equivalent basis.

Mortgage-backed securities, which include mortgage-backed obligations of U.S. Government agencies and obligations of U.S. Government-sponsored enterprises, have contractual maturities ranging from less than one year to approximately 40 years and have anticipated average lives to maturity ranging from less than three years to approximately six years.

The available for sale investment portfolio amortized cost increased $239.7 million, or 27%, at December 31, 2023 compared to 2022. Available for sale investment calls or maturities totaled $132.1 million during 2023. Liquidity provided from sales, calls and maturities was utilized to fund growth in the loan portfolio or reinvested into investment securities and interest-bearing deposits with banks.

46

Table of Contents

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

The following is a schedule of the contractual maturity distribution of securities held to maturity at December 31, 2023.

The held to maturity investment portfolio decreased $42.2 million, or 9%, at December 31, 2023 compared to 2022. Held to maturity investment purchases of $0.2 million were offset by the calls or maturities of $41.8 million in investments.

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

47

Table of Contents

Deposits

Total deposits increased $1.2 billion in 2023, of which $0.8 billion was assumed as part of the Centric acquisition. Interest-bearing demand and savings deposits increased $586.0 million, noninterest-bearing demand deposits decreased $282.0 million and time deposits increased $882.8 million. The following table shows a breakdown of our deposit portfolio between deposits originated and deposits acquired through the Centric acquisition as of December 31, 2023:

(1) Includes January 31, 2023 balance of deposits acquired as part of the Centric acquisition plus purchase accounting adjustment on time deposits.

For additional information concerning our deposits, please refer to Note 13 “Interest-Bearing Deposits.”

At December 31, 2023 and 2022, time deposits of $100 thousand or more totaled $725.1 million and $172.0 million, respectively. Time deposits of $250 thousand or more had remaining maturities as follows as of the end of each year in the two-year period ended December 31:

The estimated total amount of uninsured deposits was $2.5 billion and $2.1 billion at December 31, 2023 and 2022, respectively. Uninsured amounts are estimated based on known deposit account relationships for each depositor and insurance guidelines provided by the FDIC.

Short-Term Borrowings and Long-Term Debt

Short-term borrowings increased $225.1 million, or 60%, from $372.7 million at December 31, 2022 to $597.8 million at December 31, 2023, primarily to fund loan and investment portfolio growth. Long-term debt increased $5.5 million, from $181.2 million at December 31, 2022 to $186.8 million at December 31, 2023. For additional information concerning our short-term borrowings, subordinated debentures and other long-term debt, please refer to Note 14 “Short-term Borrowings,” Note 15 “Subordinated Debentures” and Note 16 “Other Long-term Debt” of the Consolidated Financial Statements.

Contractual Obligations and Off-Balance Sheet Arrangements

The table below sets forth our contractual obligations to make future payments as of December 31, 2023. For a more detailed description of each category of obligation, refer to the note in our Consolidated Financial Statements indicated in the table below.

48

Table of Contents

The table above excludes our cash obligations upon maturity of certificates of deposit, which is set forth in Note 13 “Interest-Bearing Deposits” of the Consolidated Financial Statements.

In addition, see Note 10 “Commitments and Letters of Credit” for detail related to our off-balance sheet commitments to extend credit, financial standby letters of credit, performance standby letters of credit and commercial letters of credit as of December 31, 2023. Commitments to extend credit, standby letters of credit and commercial letters of credit do not necessarily represent future cash requirements since it is unknown if the borrower will draw upon these commitments and often these commitments expire without being drawn upon. As of December 31, 2023, a reserve for expected credit losses of $7.3 million was recorded for unused commitments and letters of credit.

Liquidity

Liquidity refers to our ability to meet the cash flow requirements of depositors and borrowers as well as our operating cash needs with cost-effective funding. Liquidity risk arises from the possibility that we may not be able to meet our financial obligations and operating cash needs or may become overly reliant upon external funding sources. In order to manage this risk, our Board of Directors has established a Liquidity Policy that identifies primary sources of liquidity, establishes procedures for monitoring and measuring liquidity and quantifies minimum liquidity requirements based on limits approved by our Board of Directors. This policy designates our Asset/Liability Committee (“ALCO”) as the body responsible for meeting these objectives. The ALCO, which includes members of executive management, reviews liquidity on a periodic basis and approves significant changes in strategies that affect balance sheet or cash flow positions. Liquidity is centrally managed on a daily basis by our Treasury Department, which monitors it by using such measures as a 30-day liquidity stress analysis, liquidity gap ratios and noncore funding ratios.

We generate funds to meet our cash flow needs primarily through the core deposit base of FCB and the maturity or repayment of loans and other interest-earning assets, including investments. Core deposits are the most stable source of liquidity a bank can have due to the long-term relationship with a deposit customer. The level of deposits during any period is sometimes influenced by factors outside of management’s control, such as the level of short-term and long-term market interest rates and yields offered on competing investments, such as money market mutual funds. Deposits increased $1.2 billion during 2023, and comprised 91% of total liabilities at both December 31, 2023 and December 31, 2022. Proceeds from the sale, maturity and redemption of investment securities totaled $173.9 million during 2023 and provided liquidity to fund loans, purchase investment securities and fund depositor withdrawals.

The following represents our expanded sources of liquidity as of December 31, 2023:

(1) Reflects internal policy limit. Maximum capacity with CDARs is $1.7 billion.

The brokered deposits included in the table above are a result of our participation in the Certificate of Deposit Account Registry Services ("CDARS") program as part of an ALCO strategy to increase and diversify funding sources. As of December 31, 2023, the outstanding balance of $31.1 million carried an average weighted rate of 4.07% and an average original term of 248 days. These deposits are part of a reciprocal program that allows our depositors to receive expanded FDIC coverage by placing multiple certificates of deposit at other CDARS member banks.

Liquidity available through the Federal Reserve is a result of the FRB Borrower-in-Custody of Collateral program, which enables us to take certain loans that are not being used as collateral at the FHLB and pledge them as collateral for borrowings at the FRB.

During 2023, the Company increased its liquidity by purchasing $473.3 million in letters of credit from the FHLB of Pittsburgh, which were then used to secure public deposits. This resulted in a similar amount of previously pledged securities becoming

49

Table of Contents

unencumbered. Additionally, as of December 31, 2023, new short-term borrowings in the amount of $150.0 million were entered into in order to provide additional on-balance sheet liquidity.

Refer to “Financial Condition” above for additional information concerning our deposits, loan portfolio, investment securities and borrowings.

Market Risk

Market risk refers to potential losses arising from items such as changes in interest rates, foreign exchange rates, equity prices and commodity prices. Our market risk is composed primarily of interest rate risk. Interest rate risk is comprised of repricing risk, basis risk, yield curve risk and options risk. Repricing risk arises from differences in the cash flow or repricing between asset and liability portfolios. Basis risk arises when asset and liability portfolios are related to different market rate indices, which do not always change by the same amount. Yield curve risk arises when asset and liability portfolios are related to different maturities on a given yield curve; when the yield curve changes shape, the risk position is altered. Options risk arises from “embedded options” within asset and liability products as certain borrowers have the option to prepay their loans when rates fall, while certain depositors can redeem or withdraw their deposits early when rates rise.

The process by which we manage our interest rate risk is called asset/liability management. The goals of our asset/liability management are increasing net interest income without taking undue interest rate risk or material loss of net market value of our equity, while maintaining adequate liquidity. Net interest income is increased by growing earning assets and increasing the difference between the rate earned on earning assets and the rate paid on interest-bearing liabilities. Liquidity is measured by the ability to meet both depositors’ and credit customers’ requirements.

We use an asset/liability model to measure our interest rate risk. Interest rate risk measures include earnings simulation and gap analysis. Gap analysis is a static measure that does not incorporate assumptions regarding future events. Gap analysis, while a helpful diagnostic tool, displays cash flows for only a single rate environment. Net interest income simulations explicitly measure the exposure to earnings from changes in market rates of interest. Under simulation analysis, our current financial position is combined with assumptions regarding future business to calculate net interest income under various hypothetical rate scenarios. Our net interest income simulations assume a level balance sheet whereby new volume equals run-off. The ALCO reviews earnings simulations over multiple years under various interest rate scenarios. Reviewing these various measures provides us with a reasonably comprehensive view of our interest rate profile.

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 0.69 and 0.76 at December 31, 2023 and 2022, 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.

50

Table of Contents

Following is the gap analysis as of December 31:

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

51

Table of Contents

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.

The following table represents the potential sensitivity of our annual net interest income to immediate changes in interest rates as compared to if rates remained unchanged, assuming there are no changes in balance sheet categories.

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. For the years 2023 and 2022, the cost of our interest-bearing liabilities averaged 2.03% and 0.31%, respectively, and the yield on our average interest-earning assets, on a fully taxable equivalent basis, averaged 5.23% and 3.79%, respectively.

The ALCO is responsible for the identification and management of interest rate risk exposure. As such, the ALCO continuously evaluates strategies to manage our exposure to interest rate fluctuations.

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

Credit Risk

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

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

First Commonwealth also maintains a reserve for unfunded loan commitments and letters of credit based upon credit risk and probability of funding. The reserve totaled $7.3 million at December 31, 2023 and is classified in “Other liabilities” on the Consolidated Statements of Financial Condition.

We discontinue interest accruals on a loan when, based on current information and events, it is probable that we will be unable to fully collect principal or interest due according to the contractual terms of the loan. A loan is also placed in nonaccrual status

52

Table of Contents

when, based on regulatory definitions, the loan is maintained on a “cash basis” due to the weakened financial condition of the borrower. Generally, loans 90 days or more past due are placed on nonaccrual status, except for consumer loans which are placed on nonaccrual status at 150 days past due.

Nonperforming loans are closely monitored on an ongoing basis as part of our loan review and work-out process. The risk of loss on these loans is evaluated by comparing the loan balance to the estimated fair value of any underlying collateral or the present value of projected future cash flows. Losses or specifically assigned allowance for credit losses are recognized where appropriate. Nonperforming loans increased $4.0 million at December 31, 2023 compared to the prior year. Impacting the level of nonperforming loans was an increase in non accrual loans of $10.4 million and the removal of $6.4 million in accruing loans identified as troubled debt restructuring at December 31, 2022. These were eliminated as result of our adoption of ASU 2022-02 effective January 1, 2023. The increase in non accrual loans is a result of $14.5 million acquired as part of the Centric acquisition offset by the charge-off of a $4.3 million commercial real estate relationship.

Subsequent to December 31, 2023, $8.0 million of a nonperforming commercial real estate loan was paid down by the borrower. This payment represents 21.0% of the nonperforming loans at December 31, 2023.

The allowance for credit losses was $117.7 million at December 31, 2023 or 1.31% of loans outstanding, compared to $102.9 million, or 1.35% of loans outstanding, at December 31, 2022. Credit measures as of December 31, 2023 compared to December 31, 2022 reflect an increase in the level of criticized loans of $77.3 million, from $132.9 million at December 31, 2022 to $210.2 million at December 31, 2023. Commercial, financial, agricultural and other loans and commercial real estate loans accounted for $41.9 million, and $18.8 million, respectively, of this increase. Classified assets increased $42.6 million, from $44.4 million at December 31, 2022 to $87.1 million at December 31, 2023. Commercial financial, agricultural and other loans accounted for $18.9 million of this increase. Delinquency on accruing loans increased $9.6 million, or 48%.

The allowance for credit losses as a percentage of nonperforming loans was 298.2% at December 31, 2023 and 290.0% as of December 31, 2022. The allowance for credit losses includes specific allocations of $4.5 million related to nonperforming loans covering 11% of the total nonperforming balance at December 31, 2023 and specific allocations of $0.7 million covering 2% of the total nonperforming balance at December 31, 2022. The amount of allowance related to nonperforming loans was determined by using estimated fair values obtained from current appraisals and updated discounted cash flow analyses. The increase in specific reserves is primarily the result of individually analyzed PCD loans acquired from Centric.

Management believes that the allowance for credit losses is at a level that is sufficient to absorb expected losses in the loan and lease portfolio at December 31, 2023.

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