FIRST COMMONWEALTH FINANCIAL CORP PA

Previous wording

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 months ended March 31, 2024 and 2023, and should be read in conjunction with the unaudited Consolidated Financial Statements and notes thereto included in this Form 10-Q.

Current wording

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 June 30, 2024 and 2023, and should be read in conjunction with the unaudited Consolidated Financial Statements and notes thereto included in this Form 10-Q.

Previous wording

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 58 for the three months ended March 31, 2024 and 2023.

Current wording

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 pages 64 and 72 for six and three months ended June 30, 2024 and 2023.

Previous wording

For the three months ended March 31, 2024, First Commonwealth had net income of $37.5 million, or $0.37 diluted earnings per share, compared to net income of $30.2 million, or $0.30 diluted earnings per share, in the three months ended March 31, 2023. The increase in net income was primarily the result of a $5.8 million decrease in noninterest expense as a result of $8.5 million in expenses related to the Centric acquisition recognized in the three months ended March 31, 2023. Other items impacting net income include a $3.8 million decrease in the provision for credit losses and a $1.0 million increase in noninterest income, offset by a $2.1 million decrease in net interest income.

Current wording

For the six months ended June 30, 2024, First Commonwealth had net income of $74.6 million, or $0.73 diluted earnings per share, compared to net income of $73.0 million, or $0.72 diluted earnings per share, in the six months ended June 30, 2023. The increase in net income was primarily the result of a $6.0 million decrease in noninterest expense as a result of $8.5 million in expenses related to the Centric acquisition recognized in the six months ended June 30, 2023. Other items impacting net income include a $4.9 million decrease in net interest income and a $1.3 million increase in the provision for credit losses offset by a $1.7 million increase in noninterest income.

Previous wording

Net interest income, on a fully taxable equivalent basis, was $92.6 million in the first three months of 2024, compared to $94.7 million for the same period in 2023. The decrease in net interest income can be attributedtoa 150 basis point increase in the cost of interest-bearing liabilities offset by a 68 basis point increase in the yield on interest-earning assets. Net interest income comprises the majority of our operating revenue (net interest income before provision expense plus noninterest income), at 79.4% and 80.4% for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Net interest income, on a fully taxable equivalent basis, was $187.9 million in the first six months of 2024, compared to $192.8 million for the same period in 2023. The decrease in net interest income can be attributedtoa 122 basis point increase in the cost of interest-bearing liabilities offset by a 58 basis point increase in the yield on interest-earning assets. Net interest income comprises the majority of our operating revenue (net interest income before provision expense plus noninterest income), at 79.2% and 80.2% for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

The net interest margin on a fully taxable equivalent basis was 3.52% for the three months ended March 31, 2024 and 4.01% for the three months ended March 31, 2023. The net interest margin is affected by changes in the level of interest rates and the amount and composition of interest-earning assets and interest-bearing liabilities.

Current wording

The net interest margin on a fully taxable equivalent basis was 3.55% for the six months ended June 30, 2024 and 3.93% for the six months ended June 30, 2023. The net interest margin is affected by changes in the level of interest rates and the amount and composition of interest-earning assets and interest-bearing liabilities.

Previous wording

The taxable equivalent yield on interest-earning assets was 5.54% for the three months ended March 31, 2024, an increase of 68 basis points compared to the 4.86% yield for the same period in 2023. This change is a result of the higher interest rate environment and resulted in the loan portfolio yield increasing by 68 basis points when compared to the three months ended March 31, 2023. Contributing to this increase was the yield on our adjustable and variable rate commercial loan portfolios, which increased 64 basis points due to the impact on loan repricing and new volumes at higher interest rates, as the Federal Reserve increased short term interest rates by 50 basis points since March 31, 2023. Additionally,8 basis points of the yield on interest-earnings assets can be attributed to the recognition of $2.0 million in accretion of purchase accounting marks, primarily from the Centric acquisition. For the three months ended March 31, 2023, accretion of purchase accounting marks contributed $1.1 million, or 5 basis points, to the yield on interest-earning assets.

Current wording

The taxable equivalent yield on interest-earning assets was 5.60% for the six months ended June 30, 2024, an increase of 58 basis points compared to the 5.02% yield for the same period in 2023. This change is a result of the higher interest rate environment and resulted in the loan portfolio yield increasing by 58 basis points when compared to the six months ended June 30, 2023. Contributing to this increase was the yield on our adjustable and variable rate commercial loan portfolios, which increased 46 basis points due to the impact on loan repricing and new volumes at higher interest rates. Additionally,8 basis points of the yield on interest-earning assets can be attributed to the recognition of $4.1 million in accretion of purchase accounting marks, primarily from the Centric acquisition. For thesix months ended June 30, 2023, accretion of purchase accounting marks contributed$4.4 million, or 9 basis points, to the yield on interest-earning assets.

Previous wording

The investment portfolio yield increased 93 basis points in comparison to the prior year as new volume rates were higher than the portfolio yield. The average investment portfolio balance for the period ended March 31, 2024 increased $239.1 million as compared to the three months ended March 31, 2023 as a result of liquidity from growth in interest-bearing liabilities. The yield on interest-bearing deposits with banks increased 116 basis points for the three months ended March 31, 2024 as compared to the prior year in conjunction with the increase in the average balance from $46.3 million in 2023 to $112.4 million in 2024.

Current wording

The investment portfolio yield increased 101 basis points in comparison to the prior year as new volume rates were higher than the portfolio yield. The average investment portfolio balance for the period ended June 30, 2024 increased $261.4 million as compared to the six months ended June 30, 2023 as a result of liquidity from growth in interest-bearing liabilities. The yield on interest-bearing deposits with banks increased 44 basis points for the six months ended June 30, 2024 as compared to the prior year, while the average balance decreased from $178.1 million in 2023 to $160.4 million in 2024.

Previous wording

The cost of interest-bearing liabilities increased to 2.77% for the three months ended March 31, 2024, from 1.27% for the same period in 2023. The cost of interest-bearing deposits increased 148 basis points and short-term borrowings increased 92 basis points in comparison to the same period last year. The increase in 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 in money market and time deposits. Comparing the three months ended March 31, 2024 with the comparable period in 2023, average time deposits increased $704.8 million, or 103.3%, with an increase in the cost of these deposits of 187 basis points. Other interest-bearing deposits increased on average $242.6 million, or 4.6%, compared to the three months ended March 31, 2023 and the cost of these deposits increased 123 basis points. Compared to the prior period, short-term borrowings increased an average of $329.0 million in order to fund growth in loans and investments.

Current wording

The cost of interest-bearing liabilities increased to 2.81% for the six months ended June 30, 2024, from 1.59% for the same period in 2023. The cost of interest-bearing deposits increased 126 basis points and short-term borrowings increased 26 basis points in comparison to the same period last year. The increase 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 in money market and time deposit accounts. Comparing the six months ended June 30, 2024 with the comparable period in 2023, average time deposits increased $638.8 million, or 79.2%, with an increase in the cost of these deposits of 154 basis points. Other interest-bearing deposits increased on average $137.3 million, or 2.5%, compared to the six months ended June 30, 2023 and the cost of these deposits increased 103 basis points. Compared to the prior period, short-term borrowings increased an average of$219.4 million in order to fund growth in loans and investments.

Previous wording

For the three months ended March 31, 2024, changes in rates negatively impacted net interest income by $5.5 million when compared with the same period in 2023. The higher yield on interest-earning assets positively impacted net interest income by $19.9 million, while the increase in the cost of interest-bearing liabilities negatively impacted net interest income by $25.3 million.

Current wording

For the six months ended June 30, 2024, changes in rates negatively impacted net interest income by $6.9 million when compared with the same period in 2023. The higher yield on interest-earning assets positively impacted net interest income by $34.3 million, while the increase in the cost of interest-bearing liabilities negatively impacted net interest income by $41.1 million.

Previous wording

Changes in the volume of interest-earning assets and interest-bearing liabilities positively impacted net interest income by $3.4 million for the three months ended March 31, 2024, as compared to the same period in 2023. Higher levels of interest-earning assets resulted in an increase of $11.0 million in interest income, and changes in the volume and mix of interest-bearing liabilities increased interest expense by $7.6 million. Average interest-earning assets for the three months ended March 31, 2024 increased $1.0 billion, or 10.5%, compared to the same period in 2023. Average loans for the comparable period increased $0.7 billion, or 8.4%.

Current wording

Changes in the volume of interest-earning assets and interest-bearing liabilities positively impacted net interest income by $2.0 million for the six months ended June 30, 2024, as compared to the same period in 2023. Higher levels of interest-earning assets resulted in an increase of $16.1 million in interest income, and changes in the volume and mix of interest-bearing liabilities increased interest expense by $14.0 million. Average interest-earning assets for the six months ended June 30, 2024 increased $755.4 million, or 7.6%, compared to the same period in 2023. Average loans for the comparable period increased $511.7 million, or 6.0%.

Previous wording

Net interest income was negatively impacted by a $275.2 million decrease in average net free funds for the three months ended March 31, 2024 as compared to March 31, 2023. Average net free funds are the excess of noninterest-bearing demand deposits, other noninterest-bearing liabilities and shareholders’ equity over noninterest-earning assets. The level of net free funds was impacted by a lower level of noninterest-bearing demand deposits as customers became more rate sensitive and moved their funds into interest-bearing deposits.

Current wording

Net interest income was negatively impacted by a $232.5 million decrease in average net free funds for the six months ended June 30, 2024 as compared to June 30, 2023. Average net free funds are the excess of noninterest-bearing demand deposits, other noninterest-bearing liabilities and shareholders’ equity over noninterest-earning assets. The level of net free funds was impacted by a lower level of noninterest-bearing demand deposits as customers became more rate sensitive and moved their funds into interest-bearing deposits.

Previous wording

Total provision expense for the three months ended March 31, 2024, decreased $3.8 million compared to the three months ended March 31, 2023. This decrease is a result of $10.7 million in provision expense recognized in the first quarter of 2023 as the day 1 non-PCD provision expense resulting from the Centric acquisition offset by a $6.3 million increase in the provision for credit losses on loans and leases and a $0.6 million increase in the provision for off-balance sheet commitments. The increase in the provision for credit losses on loans and leases can be attributed to $4.3 million in net charge-offs recognized during the three months ended March 31, 2024 as well as $0.3 million in additional qualitative reserves related to the commercial real estate portfolio to provide for the risks related to changing collateral values. The negative provision for off-balance sheet commitments for the three months ended March 31, 2024 was a result of lower off-balance sheet commitments related to construction loans.

Current wording

Total provision expense for the six months ended June 30, 2024, increased $1.3 million compared to the six months ended June 30, 2023. The increase can be attributed to $8.7 million in net charge-offs as well as an increase of $6.7 million in specific reserves. The specific reserves can be attributed to $3.8 million for two time and demand relationships and $2.6 million for three non-owner occupied relationships, all of which were moved to nonaccrual during the six months ended June 30, 2024. During the first six months of 2023, provision expense of $10.7 million was recognized as the day 1 non-PCD provision expense resulting from the Centric acquisition and a $0.1 million decrease in the provision for off-balance sheet commitments. The negative provision for off-balance sheet commitments for the six months ended June 30, 2024 was a result of lower off-balance sheet commitments related to construction and time and demand loans.

Previous wording

The allowance for credit losses was $119.1 million, or 1.32%, of total loans and leases outstanding at March 31, 2024, compared to $117.7 million, or 1.31%, at December 31, 2023 and $133.9 million, or 1.55%, at March 31, 2023. Nonperforming loans as a percentage of total loans and leases decreased to 0.47% at March 31, 2024 from 0.51% as of March 31, 2023 and increased from 0.44% at December 31, 2023. The allowance to nonperforming loan ratio was 280.59%, 298.23% and 302.67% as of March 31, 2024, December 31, 2023 and March 31, 2023, respectively.

Current wording

The allowance for credit losses was $123.7 million, or 1.37%, of total loans and leases outstanding at June 30, 2024, compared to $117.7 million, or 1.31%, at December 31, 2023 and $133.5 million, or 1.52%, at June 30, 2023. Nonperforming loans as a percentage of total loans and leases increased to 0.63% at June 30, 2024 from 0.54% as of June 30, 2023 and 0.44% at December 31, 2023. The allowance to nonperforming loan ratio was 216.48%, 298.23% and 278.17% as of June 30, 2024, December 31, 2023 and June 30, 2023, respectively.

Previous wording

Total noninterest income, excluding gain on sale of mortgage loans, gain on sale of other loans and assets and the derivatives mark to market for the three months ended March 31, 2024, increased, $0.3 million, or 1%, compared to the three months ended

Current wording

Total noninterest income, excluding net securities losses, gain on VISA exchange, gain on sale of mortgage loans, gain on sale of other loans and assets and the derivatives mark to market for the six months ended June 30, 2024 increased $1.1 million, or 3%, compared to the six months ended June 30, 2023. Service charges on deposit accounts increased $0.7 million due to increased customer activity and trust income increased $0.5 million due to gains in the value of assets under management. Included in the $0.5 million increase in other income is a $0.2 million increase in income from limited partnership investments. Swap fee income declined $0.6 million as there were no new interest rate swaps entered into by our commercial loan customers and card-related interchange income decreased $0.4 million due to a slight decline in customer card usage.

Previous wording

Noninterest expense decreased $5.8 million, or 8%, for the three months ended March 31, 2024 compared to the same period in 2023. This decrease is primarily the result of $8.5 million in merger-related expenses associated with the Centric acquisition recognized in during the first quarter of 2023. Offsetting this is a $1.1 million increase in salaries and benefits expense primarilydue to annual merit salary increases and the inclusion of Centric employees for three months in 2024, as compared to two months in 2023. The number of full time equivalent employees totaled 1,536 at March 31, 2023 and 1,465 at March 31, 2024. Increases in net occupancy, furniture and equipment and intangible amortization all reflected increases primarily due to the Centric acquisition. Data processing costs increased $0.4 million due to continued investment in our digital banking and other product offerings. Litigation and operational losses increased $0.3 million primarily due to increased fraud losses. Contributing to the increase in other operating expenses were several expense categories, including collection and repossession, other loan expense, checkbook printing, armored courier and travel, none of which were individually significant.

Current wording

Noninterest expense decreased $6.0 million, or 4%, for the six months ended June 30, 2024 compared to the same period in 2023. This decrease is primarily the result of $8.5 million in merger-related expenses associated with the Centric acquisition recognized during the comparable period in 2023. Advertising and promotion expense decreased $0.8 million due to the timing and types of advertising in 2024 compared to 2023. Offsetting these decreases is a $1.6 million increase in salaries and benefits expense primarilydue to annual merit salary increases and the inclusion of Centric employees for six months in 2024, as compared to five months in 2023. The number of full time equivalent employees totaled 1,483 at June 30, 2023 and 1,472 at June 30, 2024. Increases in net occupancy, furniture and equipment and intangible amortization all reflected increases primarily due to the Centric acquisition, while data processing costs increased $0.5 million due to continued investment in our digital banking and other product offerings. During the six months ended June 30, 2024, $0.4 million in remaining subordinated debt issuance costs that were being amortized over the life of the instrument were accelerated and recognized in conjunction with the redemption of $50.0 million in subordinated debentures.

Previous wording

The provision for income taxes increased $1.2 million for the three months ended March 31, 2024, compared to the corresponding period in 2023, due to the increase in income before income taxes.

Current wording

The provision for income taxes decreased $0.1 million for the six months ended June 30, 2024, compared to the corresponding period in 2023.

Previous wording

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 effective tax rate of 19.2% and 20.3% for the three months ended March 31, 2024 and 2023, respectively.

Current wording

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 effective tax rate of 19.8% and 20.3% for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

As of March 31, 2024, our deferred tax assets totaled $61.9 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.

Current wording

As of June 30, 2024, our deferred tax assets totaled $60.0 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 earnings 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.

Previous wording

For the three months ended March 31, 2024, the Company’s return on average equity was 11.40% and its return on average assets was 1.31%, compared to 10.56% and 1.17%, respectively, for the three months ended March 31, 2023.

Current wording

For the three months ended June 30, 2024, the Company’s return on average equity was 11.10% and its return on average assets was 1.28%, compared to 13.90% and 1.54%, respectively, for the three months ended June 30, 2023.

Previous wording

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 three months of 2024, the maturity and redemption of investment securities provided $45.2 million in liquidity. These funds contributed to the liquidity used to originate loans, purchase investment securities and fund depositor withdrawals.

Current wording

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 six months of 2024, the sale, maturity and redemption of investment securities provided $169.4 million in liquidity. These funds contributed to the liquidity used to originate loans, purchase investment securities and fund depositor withdrawals.

Previous wording

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 Asset/Liability Committee (“ALCO”) strategy to increase and diversify funding sources. As of March 31, 2024, the outstanding balance of $27.9 million carried an average weighted rate of 4.02% and an average original term of 246 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.

Current wording

Our participation in the Certificate of Deposit Account Registry Services (“CDARS”) program is part of an Asset/Liability Committee (“ALCO”) strategy to increase and diversify funding sources. As of June 30, 2024, the outstanding balance of $21.7 million carried an average weighted rate of 3.74% and an average original term of 307 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.

Previous wording

During the first three months of 2024, total deposits increased $254.1 million. Interest-bearing demand and savings deposits increased $121.8 million, time deposits increased $186.3 million and noninterest-bearing demand deposits decreased $54.0 million.

Current wording

During the first six months of 2024, total deposits increased $216.6 million. Interest-bearing demand and savings deposits increased $59.7 million, time deposits increased $240.6 million and noninterest-bearing demand deposits decreased $83.7 million.

Previous wording

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 0.71 and 0.69 at March 31, 2024 and December 31, 2023, 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.

Current wording

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 0.67 and 0.69 at June 30, 2024 and December 31, 2023, 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.

Previous wording

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 200 basis point interest rate decline scenario is affected by the fact that many of our interest-bearing liabilities are at rates below 2%, with an assumed floor of zero in the model. In the three months ended March 31, 2024 and 2023, the cost of our interest-bearing liabilities averaged 2.77% and 1.27%, respectively, and the yield on our average interest-earning assets, on a fully taxable equivalent basis, averaged 5.54% and 4.86%, respectively.

Current wording

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 200 basis point interest rate decline scenario is affected by the fact that many of our interest-bearing liabilities are at rates below 2%, with an assumed floor of zero in the model. In the six months ended June 30, 2024 and 2023, the cost of our interest-bearing liabilities averaged 2.81% and 1.59%, respectively, and the yield on our average interest-earning assets, on a fully taxable equivalent basis, averaged 5.60% and 5.02%, respectively.

Previous wording

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 $5.9 million at March 31, 2024 and is classified in "Other liabilities" on the unaudited Consolidated Statements of Financial Condition.

Current wording

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 $4.7 million at June 30, 2024 and is classified in "Other liabilities" on the unaudited Consolidated Statements of Financial Condition.

Previous wording

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.

Current wording

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. Consumer loans related to automobile and recreational vehicles are either charged off or repossessed at no later than 90 days past due.

Previous wording

Nonperforming loans and leases, including loans held for sale, increased $3.0 million to $42.4 million at March 31, 2024, compared to $39.5 million at December 31, 2023. The increase in nonperforming loans is primarily a result of $13.5 million in commercial loans that were moved to nonaccrual during the first three months of 2024. Offsetting these additions is the payoff of an $8.1 million commercial real estate relationship accompanied by a $0.2 million charge-off and the charge-off of a $1.4 million commercial, financial, agricultural and other relationship.

Current wording

Nonperforming loans and leases, including loans held for sale, increased $17.6 million to $57.1 million at June 30, 2024, compared to $39.5 million at December 31, 2023. The increase in nonperforming loans is primarily a result of $33.7 million in commercial loans that were moved to nonaccrual during the first six months of 2024. Offsetting these additions is the payoff of three commercial real estate relationships totaling $10.3 million, accompanied by $0.5 million in charge-offs and the payoff of two commercial, financial, agricultural and other relationships totaling $1.3 million.

Previous wording

The allowance for credit losses as a percentage of nonperforming loans was 280.59% as of March 31, 2024, compared to 298.23% at December 31, 2023, and 302.67% at March 31, 2023. The amount of individually assessed reserves included in the allowance for nonperforming loans and leases 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 $5.9 million and general reserves of $113.2 million as of March 31, 2024. Specific reserves increased $0.9 million from December 31, 2023, and decreased $8.8 million from March 31, 2023. The increase from December 31, 2023 is primarily due to $1.2 million in specific reserves on nonperforming loans moved to nonaccrual and a $1.3 million increase in specific reserves on two commercial real estate relationships. Offsetting this is the $1.4 million charge-off on a commercial, financial, agricultural and other relationship, which was fully reserved. The decrease from March 31, 2023 is due to the sale of nonperforming loans releasing specific reserves of $3.1 million and the charge-off of $5.5 million related to three commercial, financial, agricultural and other relationships and $0.5 million related to a commercial real estate relationship, all of which were fully reserved.

Current wording

The allowance for credit losses as a percentage of nonperforming loans was 216.48% as of June 30, 2024, compared to 298.23% at December 31, 2023, and 278.17% at June 30, 2023. The amount of individually assessed reserves included in the allowance for nonperforming loans and leases 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 $11.8 million and general reserves of $111.9 million as of June 30, 2024. Specific reserves increased $6.7 million from December 31, 2023, and decreased $1.3 million from June 30, 2023. The increase from December 31, 2023 is primarily due to $7.4 million in specific reserves on nonperforming loans moved to nonaccrual and $1.8 million in specific reserves increased from December 31, 2023 due to updated appraisals and credit information obtained. Offsetting this are charge-offs totaling $1.8 million on two commercial, financial, agricultural and other relationship, both of which were fully reserved. The decrease from June 30, 2023 is due to the charge-off of $6.4 million related to three commercial, financial, agricultural and other relationships, all of which were fully reserved, and the payoff of loans releasing $4.4 million in specific reserves. Offsetting these are specific reserves on loans moved to nonaccrual of $6.6 million and increase in specific reserves of $2.6 million due to updated financial information.

Previous wording

Criticized loans totaled $211.9 million at March 31, 2024 and represented 2% of the loan portfolio. The level of criticized loans increased as of March 31, 2024 when compared to December 31, 2023, by $1.7 million, or 1%. Classified loans totaled $89.3 million at March 31, 2024 compared to $87.1 million at December 31, 2023, an increase of $2.2 million, or 3%. The increase in classified loans can be attributed to the increase in nonperforming loans.

Current wording

Criticized loans totaled $241.6 million at June 30, 2024 and represented 3% of the loan portfolio. The level of criticized loans increased as of June 30, 2024 when compared to December 31, 2023, by $31.4 million, or 15%. Classified loans totaled $103.1 million at June 30, 2024 compared to $87.1 million at December 31, 2023, an increase of $16.1 million, or 18%. The increase in classified loans can be attributed to the increase in nonperforming loans.

Previous wording

The allowance for credit losses was $119.1 million at March 31, 2024, or 1.32% of total loans and leases outstanding, compared to 1.31% reported at December 31, 2023, and 1.55% at March 31, 2023. General reserves, or the portion of the allowance related to loans that were not specifically evaluated, as a percentage of performing loans were 1.26% at March 31, 2024 compared to 1.26% at December 31, 2023 and 1.38% at March 31, 2023.

Current wording

The allowance for credit losses was $123.7 million at June 30, 2024, or 1.37% of total loans and leases outstanding, compared to 1.31% reported at December 31, 2023, and 1.52% at June 30, 2023. General reserves, or the portion of the allowance related to loans that were not specifically evaluated, as a percentage of performing loans were 1.25% at June 30, 2024 compared to 1.26% at December 31, 2023 and 1.38% at June 30, 2023.

Previous wording

(a)For the three-month period ended.

Current wording

(a)For the six-month period ended.

Previous wording

During the three months ended March 31, 2024, loans increased $31.1 million, or 0.3%, compared to balances outstanding at December 31, 2023.

Current wording

During the six months ended June 30, 2024, loans increased $26.1 million, or 0.3%, compared to balances outstanding at December 31, 2023.

Previous wording

Real estate construction loans decreased $38.4 million, or 6.4%, due to the completion of commercial real estate projects. Residential real estate decreased $14.6 million, or 0.6%, primarily due to sale of closed-end 1-4 family mortgage loans originated for sale. Commercial real estate loans increased $37.8 million, or 1.2%, primarily due to growth in loans secured by nonresidential property, due in part to the completion of several construction projects. Loans to individuals decreased $4.2 million, or 0.3%, primarily due to declines in the personal lines of credit portfolio. Commercial, financial, agricultural and other loans increased $50.5 million, or 3.3%, primarily due to growth in the equipment finance portfolio.

Current wording

Real estate construction loans decreased $49.7 million, or 8.3%, due to the completion of commercial real estate projects that were then moved to permanent financing. Residential real estate decreased $22.6 million, or 0.9%, primarily due to sales of closed-end 1-4 family mortgage loans originated for sale. Commercial real estate loans increased $23.9 million, or 0.8%, as a result of growth in loans secured by nonresidential property, due in part to the completion of several construction projects. Loans to individuals decreased $11.6 million, or 0.9%, primarily due to declines in the automobile and recreational vehicles portfolio as well as the personal lines of credit portfolio. Commercial, financial, agricultural and other loans increased $86.2 million, or 5.6%, primarily due to growth in the equipment finance portfolio.

Previous wording

Net charge-offs for the three months ended March 31, 2024 totaled $4.3 million, compared to $1.2 million for the three months ended March 31, 2023. The most significant charge-off during the three months ended March 31, 2024 included $1.4 million for a commercial, financial, agricultural and other loan which was fully provided for as part of Centric purchase accounting marks. Additionally, $1.9 million in charge-offs relate 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.

Current wording

Net charge-offs for the six months ended June 30, 2024 totaled $8.7 million, compared to $9.8 million for the six months ended June 30, 2023. The most significant charge-off during the six months ended June 30, 2024 included $1.4 million for a commercial, financial, agricultural and other loan, which was fully provided for as part of Centric purchase accounting marks. Additionally, $3.4 million in charge-offs relate 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.

Previous wording

At March 31, 2024, shareholders’ equity was $1.3 billion, an increase of $18.4 million from December 31, 2023. The increase was primarily the result of $37.5 million in net income. Offsetting this increase was a $7.3 million decrease in the fair value of available for sale investments and interest rate swaps, which is reflected in the Other Comprehensive Income component of capital. Other items impacting capital include an increase due to $2.8 million in treasury stock sales and decreases due to $12.8 million of dividends paid to shareholders and $1.8 million of common stock repurchases. Cash dividends declared per common share were $0.125 for the three months ended March 31, 2024.

Current wording

At June 30, 2024, shareholders’ equity was $1.4 billion, an increase of $48.2 million from December 31, 2023. The increase was primarily the result of $74.6 million in net income. Offsetting this increase was a $1.7 million decrease in the fair value of available for sale investments and interest rate swaps, which is reflected in the Other Comprehensive Income component of capital. Other items impacting capital include an increase due to $3.4 million in treasury stock sales and decreases due to $26.1 million of dividends paid to shareholders and $2.1 million of common stock repurchases. Cash dividends declared per common share were $0.255 for the six months ended June 30, 2024.

Previous wording

In 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. As of March 31, 2024, this subordinated debt issuance increased the total risk-based capital ratio by 95 basis points. The Company has announced the redemption of $50 million of this subordinated debt as of June 1, 2024. The impact of this redemption on the total risk based capital ratio is a decrease of 44 basis points.

Current wording

In 2018, First Commonwealth Bank, the Company's banking subsidiary, issued $100 million in subordinated debt, of which $50 million remained outstanding at June 30, 2024. which under the regulatory rules qualifies as Tier II capital. As of June 30, 2024, this subordinated debt issuance increased the total risk-based capital ratio by 52 basis points.

Previous wording

In October 2021, 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. On April 24, 2023, the Board of Directors authorized a $25 million increase in the share repurchase program. As of March 31, 2024, 2,491,577 common shares had been repurchased under theses program at an average price of $13.08 per share. There were no repurchases during the three months ended March 31, 2024.

Current wording

In October 2021, 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. On April 24, 2023, the Board of Directors authorized a $25 million increase in the share repurchase program. As of June 30, 2024, 2,514,538 common shares had been repurchased under these program at an average price of $13.07 per share. During the three months ended June 30, 2024, 22,961 common shares were repurchased under these programs at an average price of $12.48 per share. There were no shares purchased during the three months ended March 31, 2024.