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 and nine months ended September 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.

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 months ended March 31, 2025 and 2024, and should be read in conjunction with the unaudited Consolidated Financial Statements and notes thereto included in this Form 10-Q.

Previous wording

Certain statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in our future filings with the Securities and Exchange Commission, in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of First Commonwealth or its management or Board of Directors, including those relating to products, services or operations; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “estimate,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could” or “may,” are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

Current wording

Certain statements contained in this Annual Report on Form 10-K that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”), notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in our future filings with the Securities and Exchange Commission, in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact and constitute forward-looking statements within the meaning of the Reform Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of First Commonwealth or its management or Board of Directors, including those relating to products, services or operations; (iii) statements of future economic performance or interest rates; and (iv) statements of assumptions underlying such statements. Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “estimate,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could” or “may,” are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

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 pages 66 and 74 for nine and three months ended September 30, 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 55 for the three months ended March 31, 2025 and 2024.

Previous wording

For the three months ended September 30, 2024, First Commonwealth recognized net income of $32.1 million, or $0.31 diluted earnings per share, compared to net income of $39.2 million, or $0.38 diluted earnings per share, in the three months ended September 30, 2023. The decrease in net income was primarily the result of a $1.2 million decrease in net interest income, a $4.7 million increase in the provision for credit losses and a $2.7 million increase in noninterest expense.

Current wording

For the three months ended March 31, 2025, First Commonwealth had net income of $32.7 million, or $0.32 diluted earnings per share, compared to net income of $37.5 million, or $0.37 diluted earnings per share, in the three months ended March 31, 2024. The decrease in net income was primarily the result of a $5.7 million increase in noninterest expense, a decrease in non-interest income of $1.5 million and an increase in the provision for credit losses of $1.5 million. Offsetting these items was an increase of $3.2 million in net interest income.

Previous wording

For the three months ended September 30, 2024, the Company’s return on average equity was 9.19% and its return on average assets was 1.08%, compared to 12.46% and 1.38%, respectively, for the three months ended September 30, 2023.

Current wording

For the three months ended March 31, 2025, the Company’s return on average equity was 9.28% and its return on average assets was 1.14%, compared to 11.40% and 1.31%, respectively, for the three months ended March 31, 2024.

Previous wording

Net interest income, on a fully taxable equivalent basis, was $284.8 million in the first nine months of 2024, compared to $290.9 million for the same period in 2023. The decrease in net interest income can be attributedtoa 100 basis point increase in the cost of interest-bearing liabilities offset by a 49 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 79.3% and 80.0% for the nine months ended September 30, 2024 and 2023, respectively.

Current wording

Net interest income, on a fully taxable equivalent basis, was $95.9 million in the first three months of 2025, compared to $92.6 million for the same period in 2024. The increase in net interest income can be attributedtoa 10 basis point decrease in the cost of interest-bearing liabilities and a 3 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 80.9% and 79.4% for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

The net interest margin on a fully taxable equivalent basis was 3.55% for the nine months ended September 30, 2024 and 3.87% for the nine months ended September 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.

Current wording

The net interest margin on a fully taxable equivalent basis was 3.62% for the three months ended March 31, 2025 and 3.52% for the three months ended March 31, 2024. 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 5.63% for the nine months ended September 30, 2024, an increase of 49 basis points compared to the 5.14% 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 47 basis points when compared to the nine months ended September 30, 2023. Contributing to this increase was the yield on our adjustable and variable rate commercial loan portfolios, which increased 30 basis points due to the impact on loan repricing and new volumes at higher interest rates. Additionally, for the nine months ended September 30, 2024,8 basis points of the yield on interest-earning assets can be attributed to the recognition of $6.1 million in accretion of purchase accounting marks, primarily from the Centric acquisition. For thenine months ended September 30, 2023, accretion of purchase accounting marks contributed$6.9 million, or 9 basis points, to the yield on interest-earning assets.

Current wording

The taxable equivalent yield on interest-earning assets was 5.57% for the three months ended March 31, 2025, an increase of 3 basis points compared to the 5.54% yield for the same period in 2024. Despite a lower interest rate environment in 2025, the yield on interest-earning assets benefited from higher reinvestment rates related to the investment portfolio, resulting in the investment portfolio yield increasing by 53 basis points when compared to the three months ended March 31, 2024. For the three months ended March 31, 2025,5 basis points of the yield on interest-earning assets can be attributed to the recognition of $1.2 million in accretion of purchase accounting marks, primarily from the Centric acquisition. For thethree months ended March 31, 2024, accretion of purchase accounting marks contributed$2.0 million, or 8 basis points, to the yield on interest-earning assets.

Previous 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 September 30, 2024 increased $278.9 million as compared to the nine months ended September 30, 2023 as a result of liquidity from growth in interest-bearing liabilities. The yield on interest-bearing deposits with banks increased 20 basis points for the nine months ended September 30, 2024 as compared to the prior year, while the average balance increased from $197.5 million in 2023 to $199.9 million in 2024.

Current wording

The investment portfolio yield increased 53 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, 2025 increased $127.8 million as compared to the three months ended March 31, 2024 as a result of liquidity from growth in interest-bearing liabilities. Lower interest rates in the three months ended March 31, 2025 compared to the prior year resulted in a 91 basis point decrease in the yield on interest-bearing deposits with bank, while the average balance decreased from $112.4 million in 2024 to $76.8 million in 2025.

Previous wording

The cost of interest-bearing liabilities increased to 2.84% for the nine months ended September 30, 2024, from 1.84% for the same period in 2023. The cost of interest-bearing deposits increased 109 basis points and short-term borrowings decreased 11 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, as well as 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 nine months ended September 30, 2024 with the comparable period in 2023, average time deposits increased $599.2 million, or 67.3%, with an increase in the cost of these deposits of 130 basis points. Other interest-bearing deposits increased on average $116.7 million, or 2.1%, compared to the nine months ended September 30, 2023 and the cost of these deposits increased 88 basis points. Compared to the prior period, short-term borrowings increased an average of$158.0 million in order to provide liquidity and fund growth in loans and investments.

Current wording

The cost of interest-bearing liabilities decreased to 2.67% for the three months ended March 31, 2025, from 2.77% for the same period in 2024. The cost of interest-bearing deposits increased 5 basis points and short-term borrowings decreased 169 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, as well as 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 three months ended March 31, 2025 with the comparable period in 2024, average time deposits increased $376.5 million, or 27.1%, with a decrease in the cost of these deposits of 14 basis points. Other interest-bearing deposits increased on average $215.2 million, or 3.9%, compared to the three months ended March 31, 2024 and the cost of these deposits increased 2 basis points. Compared to the prior period, short-term borrowings decreased an average of$545.2 million due to the payoff of a $516.0 million in short-term borrowings related to the Federal Reserve Term Funding program.

Previous wording

For the nine months ended September 30, 2024, changes in rates negatively impacted net interest income by $7.0 million when compared with the same period in 2023. The higher yield on interest-earning assets positively impacted net interest income by $44.3 million, while the increase in the cost of interest-bearing liabilities negatively impacted net interest income by $51.3 million.

Current wording

For the three months ended March 31, 2025, changes in rates positively impacted net interest income by $1.8 million when compared to the same period in 2024. The yield on interest-earning assets positively impacted net interest income by $0.2 million and the decrease in the cost of interest-bearing liabilities positively impacted net interest income by $1.7 million.

Previous wording

Changes in the volume of interest-earning assets and interest-bearing liabilities positively impacted net interest income by $0.9 million for the nine months ended September 30, 2024, as compared to the same period in 2023. Higher levels of interest-earning assets resulted in an increase of $20.4 million in interest income, while changes in the volume and mix of interest-bearing liabilities increased interest expense by $19.5 million. Average interest-earning assets for the nine months ended September 30, 2024 increased $661.0 million, or 6.6%, compared to the same period in 2023. Average loans for the comparable period increased $379.7 million, or 4.4% and average investments increased $278.9 million, or 22.7%.

Current wording

Changes in the volume of interest-earning assets and interest-bearing liabilities positively impacted net interest income by $1.4 million for the three months ended March 31, 2025, as compared to the same period in 2024. Higher levels of interest-earning assets resulted in an increase of $1.5 million in interest income, while changes in the volume and mix of interest-bearing liabilities increased interest expense by $0.1 million. Average interest-earning assets for the three months ended March 31, 2025 increased $162.4 million, or 1.5%, compared to the same period in 2024. Average loans for the comparable period increased $70.2 million, or 0.8% and average investments increased $127.8 million, or 8.7%.

Previous wording

Net interest income was negatively impacted by a $190.8 million decrease in average net free funds for the nine months ended September 30, 2024 as compared to September 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. Average noninterest-bearing demand deposits for the nine months ended September 30, 2024 decreased $292.7 million, or 11.3%, compared to the same period in 2023.

Current wording

Net interest income was positively impacted by a $39.6 million increase in average net free funds for the three months ended March 31, 2025 as compared to March 31, 2024. 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. Average noninterest-bearing demand deposits for thethree months ended March 31, 2025 decreased$49.5 million, or 2.2%, compared to the same period in 2024.

Previous wording

The following is an analysis of the average balance sheets and net interest income on a fully taxable equivalent basis for the three months ended September 30:

Current wording

The following is an analysis of the average balance sheet and net interest income on a fully taxable equivalent basis for the three months ended March 31:

Previous wording

The allowance for credit losses was $126.1 million, or 1.41%, of total loans and leases outstanding at September 30, 2024, compared to $117.7 million, or 1.31%, at December 31, 2023 and $134.3 million, or 1.51%, at September 30, 2023. Nonperforming loans as a percentage of total loans and leases increased to 0.83% at September 30, 2024 from 0.54% as of September 30, 2023 and 0.44% at December 31, 2023. The allowance to nonperforming loan ratio was 168.77%, 298.23% and 280.31% as of September 30, 2024, December 31, 2023 and September 30, 2023, respectively.

Current wording

The allowance for credit losses was $119.9 million, or 1.32%, of total loans and leases outstanding at March 31, 2025, compared to $118.9 million, or 1.32%, at December 31, 2024 and $119.1 million, or 1.32%, at March 31, 2024. Nonperforming loans as a percentage of total loans and leases increased to 0.65% at March 31, 2025 from 0.47% as of March 31, 2024 and 0.68% at December 31, 2024. The allowance to nonperforming loan ratio was 201.89%, 193.48% and 280.59% as of March 31, 2025, December 31, 2024 and March 31, 2024, respectively.

Previous 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 nine months ended September 30, 2024 decreased $0.6 million, or 1%, compared to the nine months ended September 30, 2023. This decrease is primarily due to a $3.5 million decline in card-related interchange income resulting from the Company being subject to the Durbin Amendment to the Dodd-Frank Act beginning July 1, 2024. The Durbin Amendment is now applicable to the Company because its total assets exceeded $10.0 billion as of December 31, 2023. We estimate that the application of the interchange fee cap, as compared to the twelve months prior to the July 1, 2024 effective date, will decrease our interchange income by approximately $6.3 million in 2024 and approximately $12.8 million in 2025.

Current wording

4%, compared to the three months ended March 31, 2024. This decrease is primarily due to a $3.0 million decline in card-related interchange income resulting from the Company being subject to the Durbin Amendment to the Dodd-Frank Act beginning July 1, 2024. The Durbin Amendment is now applicable to the Company because its total assets exceeded $10.0 billion as of December 31, 2023. The Company will be subject to the Durbin Amendment for the full year of 2025 and it is expected to decrease 2025 interchange income by approximately $6.0 million compared to the full year 2024.

Previous wording

Income from bank owned life insurance increased $1.3 million, of which $1.0 million was related to an increase in policy death benefits. Service charges on deposit accounts increased $0.9 million primarily due to higher business account analysis income and increased customer activity. Trust income increased $0.8 million due to gains in the value of assets under management. Swap fee income declined $0.9 million as a result of a decrease in new interest rate swaps entered into by our commercial loan customers compared to the prior period.

Current wording

Trust income increased $0.3 million due to revenue for assets under management. Insurance and brokerage commissions increased $0.5 million primarily due to higher annuity sales. Swap fee income increased $0.8 million as a result of new interest rate swaps entered into by our commercial loan customers compared to the prior period.

Previous wording

Total noninterest income increased $1.6 million, or 2%, compared to the same period in the prior year. The most significant changes, other than the changes noted above, include a $5.7 million gain related to the conversion and sale of Visa class B shares. Gain on sale of mortgages increased $1.0 million as a result of changes in volume and spread received on mortgage loans sold, and gain on sale of other loans and assets increased $1.0 million due to an increase in the volume and spread on the sale of SBA loans. Offsetting these gains are $5.3 million in losses recognized on the sale of $75.1 million in available for sale securities, which were sold in order to reinvest into higher yielding investments.

Current wording

Total noninterest income decreased $1.5 million, or 6%, compared to the same period in the prior year. The most significant changes, other than the changes noted above, include a $5.1 million gain related to the sale of VISA class B-2 shares. Offsetting this gain was $5.1 million in losses recognized on the sale of $53.7 million in available for sale securities, which were sold in order to reinvest into higher yielding investments, and a $0.7 million decrease in gain on sale of other loans and assets due to the volume and spread on the sale of SBA loans.

Previous wording

Noninterest expense decreased $3.3 million, or 2%, for the nine months ended September 30, 2024 compared to the same period in 2023. This decrease is primarily the result of $8.9 million in merger-related expenses associated with the Centric acquisition recognized during the comparable period in 2023. For the nine months ended September, 30, 2024, advertising and promotion expense decreased $0.5 million due to the timing and types of advertising in 2024 compared to 2023. Offsetting these decreases is a $4.6 million increase in salaries and benefits expense primarilydue to annual merit salary increases, higher severance expense and an increase in the number of full-time employees. The number of full time equivalent employees totaled 1,481 at September 30, 2023 and 1,500 at September 30, 2024. Increases in net occupancy expense can be attributed to insurance costs as well as higher depreciation expenses from new or improved locations. Data processing costs increased $0.5 million due to continued investment in our digital banking and other product offerings. During the nine months ended September 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.

Current wording

Increases in net occupancy expense can be attributed to higher rent, utilities and snow removal costs.

Previous wording

The provision for income taxes decreased $1.7 million for the nine months ended September 30, 2024, compared to the corresponding period in 2023.

Current wording

The provision for income taxes decreased $0.6 million for the three months ended March 31, 2025, compared to the corresponding period in 2024.

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 20.1% and 20.3% for the nine months ended September 30, 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 20.3% and 19.2% for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

As of September 30, 2024, our deferred tax assets totaled $53.2 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.

Current wording

As of March 31, 2025, our deferred tax assets totaled $49.4 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

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 nine months of 2024, the sale, maturity and redemption of investment securities provided $253.1 million in liquidity. These funds contributed to the liquidity available 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 three months of 2025, the sale, maturity and redemption of investment securities provided $111.7 million in liquidity. These funds contributed to the liquidity available to originate loans, purchase investment securities and fund depositor withdrawals.

Previous 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 September 30, 2024, the outstanding CDARS balance of $17.6 million carried an average weighted rate of 3.53% and an average original term of 364 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 March 31, 2025, the outstanding CDARS balance of $14.5 million carried an average weighted rate of 2.97% and an average original term of 321 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

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 the first quarter of 2024, borrowings of $516.0 million at a rate of 4.76% were originated under the Federal Reserve's Bank Term Funding Program in order to fund growth in loans and investments. These borrowings have a maturity date of January 16, 2025, and can be repaid without penalty at any time. Subsequent to September 30, 2024, the Company paid off $436.0 million of the borrowings under the Bank Term Funding Program.

Current wording

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.

Previous wording

During the first nine months of 2024, total deposits increased $553.2 million. Interest-bearing demand and savings deposits increased $109.0 million, time deposits increased $368.9 million and noninterest-bearing demand deposits increased $75.4 million.

Current wording

During the first three months of 2025, total deposits increased $183.6 million. Interest-bearing demand and savings deposits increased $187.3 million, time deposits decreased $27.9 million and noninterest-bearing demand deposits increased $24.2 million.

Previous wording

The estimated total of uninsured deposits was $2.8 billion and $2.5 billion at September 30, 2024 and December 31, 2023, respectively, of which $0.9 billion and $0.8 billion were secured by pledged investment securities or letters of credit at September 30, 2024 and December 31, 2023, respectively. Uninsured amounts are estimated based on known account relationships for each depositor and insurance guidelines provided by the FDIC.

Current wording

The estimated total of uninsured deposits was $2.7 billion and $2.6 billion at March 31, 2025 and December 31, 2024, respectively, of which $0.7 billion were secured by pledged investment securities or letters of credit at both March 31, 2025 and December 31, 2024, respectively. Uninsured amounts are estimated based on known account relationships for each depositor and insurance guidelines provided by the FDIC.

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 0.70 and 0.69 at September 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.

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 0.68 at March 31, 2025 and December 31, 2024. 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

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

Current wording

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 the gap analysis.

Previous wording

The Company evaluates its potential interest rate sensitivity by utilizing multiple interest rate scenarios that incorporate both rising and declining rates. Results of these scenarios are impacted by variables that include the current level of interest rates, product characteristics such as floors and ceilings, the frequency with which variable rate products reset their rates, and projected pricing changes for non-maturity deposits. For example, the results in a declining rate scenario could be affected by the model's use of an assumed interest rate floor of zero. In the nine months ended September 30, 2024 and 2023, the cost of our interest-bearing liabilities averaged 2.84% and 1.84%, respectively, and the yield on our average interest-earning assets, on a fully taxable equivalent basis, averaged 5.63% and 5.14%, respectively.

Current wording

The Company evaluates its potential interest rate sensitivity by utilizing several interest rate scenarios that incorporate both rising and declining rates. Results of these scenarios are impacted by variables that include the current level of interest rates, product characteristics such as floors and ceilings, the frequency with which variable rate products reset their rates, and projected pricing changes for non-maturity deposits. For example, the results in a declining rate scenario could be affected by the model's use of an assumed interest rate floor of zero. For the three months ended March 31, 2025 and 2024, the cost of our interest-bearing liabilities averaged 2.67% and 2.77%, respectively, and the yield on our average interest-earning assets, on a fully taxable equivalent basis, averaged 5.57% and 5.54%, respectively.

Previous wording

Management of credit risk within our loan and lease portfolio is a focus of the Company and is a continuous process in order to address changing economic and lending environments. In order to identify and manage credit risk, segment and concentration limits are established and approved by our Board of Directors’ Risk Committee in order to maintain alignment with our credit risk appetite, loan strategic plan, loan policy and underwriting guidelines. In addition, our Credit Department completes industry studies to identify potential risk in the portfolio. For example, within the commercial real estate portfolio, industry studies are completed for the following sectors: hospitality, industrial, multifamily, office, retail, senior living, healthcare and student housing.

Current wording

Management of credit risk within our loan and lease portfolio is a focus of the Company and is a continuous process in order to address changing economic and lending environments. In order to identify and manage credit risk, segment and concentration limits are established and approved by our Board of Directors’ Risk Committee in order to maintain alignment with our credit risk appetite, loan strategic plan, loan policy and underwriting guidelines. In addition, our Credit Department completes industry studies to identify potential risk in the portfolio. For example, within the commercial real estate portfolio, industry studies are completed for the following sectors: hospitality, industrial, multifamily, office, retail, senior living, healthcare and student housing. All industry studies are completed on an annual basis with the exception of senior living and healthcare which are completed every other year.

Previous wording

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 probable estimated losses.

Current wording

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.

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 $4.1 million at September 30, 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 $5.7 million at March 31, 2025 and is classified in "Other liabilities" on the unaudited Consolidated Statements of Financial Condition.

Previous wording

Nonperforming loans are closely monitored on an ongoing basis as part of our loan review and work-out process. The probable risk of loss on these loans is evaluated by comparing the loan balance to the fair value of any underlying collateral or the present value of projected future cash flows. Losses or a specifically assigned allowance for loan losses are recognized where appropriate.

Current wording

Nonperforming loans are closely monitored on an ongoing basis as part of our loan review and work-out process. The probable risk of loss on these loans is evaluated by comparing the loan balance to the estimated fair value of any underlying collateral or the present value of projected future cash flows. Losses or a specifically assigned allowance for loan losses are recognized where appropriate.

Previous wording

Nonperforming loans and leases, including loans held for sale, increased $35.3 million to $74.7 million at September 30, 2024, compared to $39.5 million at December 31, 2023. The increase in nonperforming loans is primarily a result of $54.2 million in commercial loans that were moved to nonaccrual during the first nine months of 2024. Offsetting these additions is the payoff or sale of $12.8 million for five commercial real estate relationships and the payoff of two commercial, financial, agricultural and other relationships totaling $1.3 million.

Current wording

Nonperforming loans and leases, including loans held for sale, decreased $2.1 million to $59.4 million at March 31, 2025, compared to $61.5 million at December 31, 2024. The decrease in nonperforming loans is primarily a result of $12.7 million in loan payoffs, including three commercial real estate loans totaling $8.5 million, five commercial, financial, agricultural and other loans totaling $3.2 million and one construction other loan totaling $1.0 million. Offsetting these payoffs was $12.9 million in commercial loans that were moved to nonaccrual during the first three months of 2025. Charge-offs for the three months ended March 31, 2025 included $2.5 million related to commercial, financial, agricultural and other loans and $1.3 million in commercial real estate loans.

Previous wording

The allowance for credit losses as a percentage of nonperforming loans was 168.77% as of September 30, 2024, compared to 298.23% at December 31, 2023, and 280.31% at September 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 $14.3 million and general reserves of $111.8 million as of September 30, 2024. Specific reserves increased $9.2 million from December 31, 2023, and decreased $2.4 million from September 30, 2023. The increase from December 31, 2023 is primarily due to $9.0 million in specific reserves related to loans moved to nonaccrual during the period. The decrease from September 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 $6.2 million.

Current wording

The allowance for credit losses as a percentage of nonperforming loans was 201.89% as of March 31, 2025, compared to 193.48% at December 31, 2024, and 280.59% at March 31, 2024. 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 allocations of $7.9 million and general reserves of $112.0 million as of March 31, 2025. Specific reserves were comparable to the December 31, 2024 level, and increased $2.0 million from March 31, 2024.

Previous wording

Criticized loans totaled $242.0 million at September 30, 2024 and represented 2.7% of the loan portfolio. The level of criticized loans increased as of September 30, 2024 when compared to December 31, 2023, by $31.8 million, or 15%. Classified loans totaled $114.8 million at September 30, 2024 compared to $87.1 million at December 31, 2023, an increase of $27.7 million, or 32%. The increase in classified loans can be attributed to the increase in nonperforming loans.

Current wording

Criticized loans totaled $190.5 million at March 31, 2025 and represented 2.1% of the loan portfolio. The level of criticized loans decreased as of March 31, 2025 when compared to December 31, 2024, by $33.7 million, or 15%. Classified loans totaled $88.9 million at March 31, 2025 compared to $96.3 million at December 31, 2024, a decrease of $7.4 million, or 8%. The lower level of classified loans can be attributed to the decrease in nonperforming loans as previously discussed.

Previous wording

The allowance for credit losses was $126.1 million at September 30, 2024, or 1.41% of total loans and leases outstanding, compared to 1.31% reported at December 31, 2023, and 1.51% at September 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 1.26% at September 30, 2024 compared to 1.26% at December 31, 2023 and 1.33% at September 30, 2023.

Current wording

The allowance for credit losses was $119.9 million at March 31, 2025, or 1.32% of total loans and leases outstanding, compared to 1.32% reported at December 31, 2024, and 1.32% at March 31, 2024. General reserves, or the portion of the allowance related to loans that were not specifically evaluated, as a percentage of performing loans were 1.24% at March 31, 2025 compared to 1.24% at December 31, 2024 and 1.26% at March 31, 2024.

Previous wording

(a)For the nine-month period ended.

Current wording

(a)For the three-month period ended.

Previous wording

During the nine months ended September 30, 2024, loans decreased $3.3 million compared to balances outstanding at December 31, 2023.

Current wording

During the three months ended March 31, 2025, loans increased $109.4 million compared to balances outstanding at December 31, 2024.