Premises and Equipment

12 Months Ended

Dec. 31, 2021

Property, Plant and Equipment [Abstract]

Premises, Equipment and Lease Commitments

Premises and Equipment

Premises and equipment are described as follows:


	Estimated Useful Life	2023		2022
	(dollars in thousands)
Land	Indefinite	$	14,499	$	13,860
Buildings and improvements	10-50 years	74,622		70,844
Operating lease right of use asset	1-25 years	59,367		51,499
Leasehold improvements	5-40 years	39,752		37,398
Furniture and equipment	3-7 years	78,868		76,879
Software	3-7 years	45,218		44,439
Subtotal		312,326		294,919
Less accumulated depreciation and amortization		191,311		179,813
Total premises and equipment, net		$	121,015	$	115,106

Depreciation related to premises and equipment included in noninterest expense for the years ended December 31, 2023, 2022 and 2021 amounted to $9.6 million, $9.1 million and $9.9 million, respectively. Amortization of lease right-of-use assets totaled $3.6 million in 2023, $3.4 million in 2022 and $1.4 million in 2021.

Lease Commitments

First Commonwealth has elected to apply certain practical expedients under ASU 2016-02 "Leases" (Topic 842), including (i) to not apply the requirements in the new standard to short-term leases (ii) to not reassess the lease classification for any expired or existing lease (iii) to account for lease and non-lease components separately (iv) to not reassess initial direct costs for any existing leases. The impact of this standard primarily relates to operating leases of certain real estate properties, primarily certain branch and ATM locations and office space. First Commonwealth has no material leasing arrangements for which it is the lessor of property or equipment.

The following table represents the lease costs and other lease information for the years ended December 31.


	2023			2022
	(dollars in thousands)
Balance sheet:
Operating lease asset classified as premises and equipment	$	45,005		$	40,747
Operating lease liability classified as other liabilities	49,327			45,149
Income statement:
Operating lease cost classified as occupancy and equipment expense	$	6,089		$	4,990

Weighted average lease term, in years	13.19			13.95
Weighted average discount rate	3.54		%	3.29		%
Operating cash flows	$	6,169		$	4,838

In the above table, the increase in the ROU asset and lease liability at December 31, 2023 compared to December 21, 2022, is primarily a result of leases assumed as part of the Centric acquisition.

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 FHLB. This rate is consistent with a collateralized borrowing rate and is available for terms similar to the lease payment schedules.

The following table reconciles future minimum lease payments due under non-cancelable operating leases (those amounts subject to recognition) to the lease liability as of December 31, 2023 (dollars in thousands):



For the twelve months ended December 31,
2024	$	5,845
2025	5,621
2026	5,150
2027	4,884
2028	4,695
Thereafter	36,749
Total future minimum lease payments	62,944
Less remaining imputed interest	13,617
Operating lease liability	$	49,327

Rent expense, net of rental income, for all operating leases totaled $5.9 million in 2023, $4.7 million in 2022 and $4.5 million in 2021. Rent expense includes amounts related to items that are not included in the determination of lease right-of-use assets including expenses related to short-term leases and non-lease components such as taxes, insurance, and common area maintenance costs.