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, 2025 and 2024, 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, 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 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:

Current 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 “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

•The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board.

Current wording

•The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board and the implementation of tariffs and other protectionist trade policies.

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 55 for the three months ended March 31, 2025 and 2024.

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 and 72 for the six and three months ended June 30, 2025 and 2024, respectively.

Previous 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.

Current wording

For the six months ended June 30, 2025, First Commonwealth had net income of $66.1 million, or $0.64 diluted earnings per share, compared to net income of $74.6 million, or $0.73 diluted earnings per share, in the six months ended June 30, 2024. The decrease in net income was primarily the result of a $16.1 million increase in noninterest expense, including $4.0 million in merger-related expenses associated with the Center acquisition. Other items impacting results include a decrease in non-interest income of $1.9 million and an increase in the provision for credit losses of $6.3 million, including the $3.8 million in provision expense related to the day 1 CECL adjustment on non-PCD loans acquired in the Center acquisition. Partially offsetting these changes was a $14.5 million increase in net interest income.

Previous 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.

Current wording

Net interest income, on a fully taxable equivalent basis, was $202.4 million in the first six months of 2025, compared to $187.9 million for the same period in 2024. The increase in net interest income can be attributedtoan 18 basis point decrease in the cost of interest-bearing liabilities and a 5 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 81.0% and 79.2% for the six months ended June 30, 2025 and 2024, respectively.

Previous 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.

Current wording

The net interest margin on a fully taxable equivalent basis was 3.73% for the six months ended June 30, 2025 and 3.55% for the six months ended June 30, 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 5.57% 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.

Current wording

The taxable equivalent yield on interest-earning assets was 5.65% for the six months ended June 30, 2025, an increase of five basis points compared to the 5.60% yield for the same period in 2024. The yield on interest-earning assets benefited from higher reinvestment rates related to the investment portfolio, resulting in the investment portfolio yield increasing by 49 basis points when compared to the six months ended June 30, 2024. For the six months ended June 30, 2025, seven basis points of the yield on interest-earning assets can be attributed to the recognition of $3.9 million in accretion of purchase accounting marks, of which two basis points can be attributed to the Center acquisition. For thesix months ended June 30, 2024, accretion of purchase accounting marks contributed$4.1 million, oreight basis points, to the yield on interest-earning assets.

Previous 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.

Current wording

The investment portfolio yield increased 49 basis points in comparison to the prior year as new volume rates were higher than the portfolio yield. The average investment portfolio for the six months ended June 30, 2025 increased $142.4 million as compared to the six months ended June 30, 2024 as a result of excess liquidity from growth in interest-bearing liabilities. Lower interest rates in the six months ended June 30, 2025 compared to the prior year resulted in an 82 basis point decrease in the yield on interest-bearing deposits with bank, while the average balance decreased from $160.4 million in 2024 to $68.2 million in 2025.

Previous 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.

Current wording

The cost of interest-bearing liabilities decreased to 2.63% for the six months ended June 30, 2025, from 2.81% for the same period in 2024. The cost of interest-bearing deposits decreased 6 basis points and short-term borrowings decreased 81 basis points in comparison to the same period last year. The cost of interest-bearing deposits was impacted by declines in market interest rates as well as changes in the mix of deposits, as customers moved funds to take advantage of higher rates offered in money market and time deposit accounts. Comparing the six months ended June 30, 2025 with the comparable period in 2024, average time deposits increased $309.9 million, or 21.4%, with a decrease in the cost of these deposits of 34 basis points. Contributing to the average growth in time deposits was an average of $25.2 million acquired as part of the Center acquisition. Other interest-bearing deposits increased on average $292.9 million, or 5.2%, compared to the six months ended June 30, 2024 and the cost of these deposits decreased 4 basis points. Average growth in other-interest bearing deposits attributable to the Center acquisition totaled $48.9 million. Compared to the prior period, short-term borrowings decreased an average of$471.8 million primarily due to the payoff of $516.0 million in short-term borrowings related to the Federal Reserve Term Funding program in the fourth quarter of 2024.

Previous 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.

Current wording

For the six months ended June 30, 2025, changes in rates positively impacted net interest income by $9.1 million when compared to the same period in 2024. The yield on interest-earning assets positively impacted net interest income by $3.0 million and the decrease in the cost of interest-bearing liabilities positively impacted net interest income by $6.1 million.

Previous 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%.

Current wording

Changes in the volume of interest-earning assets and interest-bearing liabilities positively impacted net interest income by $5.4 million for the six months ended June 30, 2025, as compared to the same period in 2024. Higher levels of interest-earning assets resulted in an increase of $6.9 million in interest income, while changes in the volume and mix of interest-bearing liabilities increased interest expense by $1.6 million. Average interest-earning assets for the six months ended June 30, 2025 increased $292.8 million, or 2.7%, compared to the same period in 2024. Average loans for the comparable period increased $242.6 million, or 2.7%, and average investments increased $142.4 million, or 9.5%. Average loans attributable to the Center acquisition for the six month period ended June 30, 2025 totaled $66.8 million.

Previous 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.

Current wording

Net interest income was positively impacted by a $77.9 million increase in average net free funds for the six months ended June 30, 2025 as compared to the corresponding period in 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, as well as higher average shareholders' equity due to retained earnings and stock issued for the Center acquisition. Average noninterest-bearing demand deposits for thesix months ended June 30, 2025 decreased$21.3 million, or 0.9%, compared to the same period in 2024 despite the addition of $14.1 million related to the Center acquisition.

Previous 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:

Current wording

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

Previous 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.

Current wording

The allowance for credit losses was $133.0 million, or 1.39%, of total loans and leases outstanding at June 30, 2025, compared to $118.9 million, or 1.32%, at December 31, 2024 and $123.7 million, or 1.37%, at June 30, 2024. Nonperforming loans as a percentage of total loans and leases increased to 1.04% at June 30, 2025 from 0.63% as of June 30, 2024 and 0.68% at December 31, 2024. The allowance to nonperforming loan ratio was 133.62%, 193.48% and 216.48% as of June 30, 2025, December 31, 2024 and June 30, 2024, respectively.

Previous 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.

Current wording

Total noninterest income (excluding net securities losses, gain on VISA sale, 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, 2025 decreased $2.1 million, or 5%, compared to the six months ended June 30, 2024. This decrease is primarily due to a $6.2 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 and its curtailment of card-related interchange income went into effect on July 1, 2024.

Previous 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.

Current wording

Swap fee income increased $1.3 million compared to the prior period as a result of new interest rate swaps entered into by our commercial loan customers. Other income increased $0.9 million largely due to a $0.5 million increase in limited partnership income while income from bank owned life insurance increased $0.8 million primarily due to a stable value wrap restructure completed in the first quarter of 2025.

Previous wording

Noninterest expense increased $5.7 million, or 9%, for the three months ended March 31, 2025 compared to the same period in 2024. This increase is primarily the result of a $5.1 million increase in salaries and benefits expense. Contributing to the higher salary expense in 2025 was a $3.2 million increase in incentive expense, of which $1.5 million can be attributed to finalizing payments related to prior year volumes and performance, with the remaining increase due to higher volumes in 2025. Also impacting the increase in salary and benefit expense was a $0.6 million increase in hospitalization expense as well as the impact of annual merit salary increases and a higher number of full-time employees. The number of full time equivalent employees totaled 1,465 at March 31, 2024 and 1,538 at March 31, 2025.

Current wording

Noninterest expense increased $16.1 million, or 12%, for the six months ended June 30, 2025 compared to the same period in 2024. This increase is primarily the result of an $8.4 million increase in salaries and benefits expense. Contributing to the higher salary expense in 2025 was a $4.0 million increase in incentive expense, of which $1.5 million can be attributed to finalizing payments related to prior year volumes and performance, with the remaining increase due to higher volumes in 2025. Also impacting the increase in salary and benefit expense is a $0.3 million increase in hospitalization expense and a higher number of full time equivalent employees, partially due to the Center acquisition. The number of full time equivalent employees totaled 1,472 at June 30, 2024 and 1,562 at June 30, 2025.

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 20.3% and 19.2% for the three months ended March 31, 2025 and 2024, 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 20.5% and 19.8% for the six months ended June 30, 2025 and 2024, respectively.

Previous 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.

Current wording

As of June 30, 2025, our deferred tax assets totaled $51.7 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, 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.

Current wording

For the three months ended June 30, 2025, the Company’s return on average equity was 8.97% and its return on average assets was 1.11%, compared to 11.10% and 1.28%, respectively, for the three months ended June 30, 2024.

Previous 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.

Current wording

The most significant changes, other than the changes noted above, are a result of securities transactions in the three months ended June 30, 2024 with no similar activity in the comparable period of 2025. This includes a $5.6 million gain related to the conversion of Visa class B shares and $5.5 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.

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 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.

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 2025, the sale, maturity and redemption of investment securities provided $225.8 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 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.

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, 2025, the outstanding CDARS balance of $14.5 million carried an average weighted rate of 2.96% 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

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.

Current wording

The estimated total of uninsured deposits was $2.8 billion and $2.6 billion at June 30, 2025 and December 31, 2024, respectively, of which $0.8 billion were secured by pledged investment securities or letters of credit at both June 30, 2025 and December 31, 2024. Uninsured amounts are estimated based on known account relationships for each depositor and insurance guidelines provided by the FDIC.

Previous 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.

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 six months ended June 30, 2025 and 2024, the cost of our interest-bearing liabilities averaged 2.63% and 2.81%, respectively, and the yield on our average interest-earning assets, on a fully taxable equivalent basis, averaged 5.65% and 5.60%, 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 $5.7 million at March 31, 2025 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 $6.7 million at June 30, 2025 and is classified in "Other liabilities" on the unaudited Consolidated Statements of Financial Condition.

Previous 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.

Current wording

Nonperforming loans and leases, including loans held for sale, increased $38.1 million to $99.5 million at June 30, 2025, compared to $61.5 million at December 31, 2024. The increase in nonperforming loans is primarily the result of a $31.9 million dealer floor plan relationship moved to nonaccrual during the second quarter 2025 as a result of being out of trust on sold vehicles. Other additions to nonaccrual during the six months ended June 30, 2025 include $15.2 million in numerous commercial relationships and $8.4 million from the Center acquisition. Offsetting these additions are payoffs of nonperforming loans totaling $12.7 million. Charge-offs for the six months ended June 30, 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 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.

Current wording

The allowance for credit losses as a percentage of nonperforming loans was 133.62% as of June 30, 2025, compared to 193.48% at December 31, 2024, and 216.48% at June 30, 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 $14.1 million and general reserves of $118.9 million as of June 30, 2025. Specific reserves increased $6.1 million in comparison to December 31, 2024 and $2.3 million from June 30, 2024. The increase in specific reserves compared to December 31, 2024 is primarily due to a $4.2 million specific reserve established for the $31.9 million dealer floor plan relationship placed on nonaccrual status in the second quarter of 2025 and $3.6 million in a day-1 allowance for credit losses recognized related to PCD loans acquired from Center.

Previous 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.

Current wording

Criticized loans totaled $254.9 million at June 30, 2025 and represented 2.7% of the loan portfolio. The level of criticized loans increased as of June 30, 2025 when compared to December 31, 2024, by $30.7 million, or 14%. Classified loans totaled $130.0 million at June 30, 2025 compared to $96.3 million at December 31, 2024, an increase of $33.7 million, or 35%. The higher level of classified loans can be attributed to the increase in nonperforming loans as previously discussed.

Previous 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.

Current wording

The allowance for credit losses was $133.0 million at June 30, 2025, or 1.39% of total loans and leases outstanding, compared to 1.32% reported at December 31, 2024, and 1.37% at June 30, 2024. General reserves, or the portion of the allowance related to loans that were not specifically evaluated, as a percentage of performing loans were 1.25% at June 30, 2025 compared to 1.24% at December 31, 2024 and 1.25% at June 30, 2024.

Previous wording

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

Current wording

During the six months ended June 30, 2025, loans increased $587.1 million compared to balances outstanding at December 31, 2024, $292.6 million of which can be attributed to the Center acquisition.

Previous wording

Commercial, financial, agricultural and other loans increased $84.2 million, or 5.0%, primarily due to growth in the equipment finance portfolio and time and demand loans. Real estate construction loans increased $5.3 million, or 1.1%, due to loan originations for new commercial real estate projects. Residential real estate decreased $26.5 million, or 1.1%, primarily due to a decline in residential first lien loans. Commercial real estate loans increased $33.7 million, or 1.1%, as a result of growth in loans secured by multifamily commercial real estate. Loans to individuals increased $12.7 million, or 0.9%, primarily due to growth in the automobile and recreational vehicles portfolio offset by a decline in the personal lines of credit portfolio.

Current wording

Originated commercial, financial, agricultural and other loans increased $216.1 million, or 12.9%, primarily due to growth in the equipment finance portfolio and time and demand loans. Originated real estate construction loans decreased $68.8 million, or 14.2%, due to commercial real estate projects that were completed and moved to permanent funding. Originated residential real estate decreased $34.3 million, or 1.5%, primarily due to a decline in residential first lien loans. Originated commercial real estate loans increased $127.0 million, or 4.1%, as a result of growth in loans secured by non-owner occupied commercial real estate. Originated loans to individuals increased $54.4 million, or 4.0%, primarily due to growth in the automobile and recreational vehicles portfolio offset by a decline in the personal line of credit portfolio.

Previous wording

The following tables represent our commercial real estate portfolio by type of property securing the credit as of March 31, 2025. Total non-pass commercial real estate loans decreased by $10.8 million to $99.0 million when compared to December 31, 2024.

Current wording

The following tables represent our commercial real estate portfolio by type of property securing the credit as of June 30, 2025. Total non-pass commercial real estate loans decreased by $3.6 million to $106.2 million when compared to December 31, 2024.

Previous wording

The office portfolio comprises 16% of total commercial real estate loans and 26% of total commercial real estate non-pass loans. The average loan commitment size for the office portfolio is $1.1 million and the average outstanding balance as of March 31, 2025 is $1.1 million. Within the office portfolio, exposures over $1.0 million have an average debt service coverage ratio of 1.50x, which exceeds our internal guidelines of 1.35x to 1.40x, depending on property class. Additionally, for loans with exposure over $1.0 million, the office portfolio has an average loan to value of 60.0% compared to internal guidelines of 60-75%, depending on property class. Our current measure is based off of the most recent appraisal on file, the majority of which are from origination.

Current wording

The office portfolio comprises 15% of total commercial real estate loans and 25% of total commercial real estate non-pass loans. The average loan commitment size for the office portfolio is $1.1 million and the average outstanding balance as of June 30, 2025 is $0.9 million. Within the office portfolio, exposures over $1.0 million have an average debt service coverage ratio of 1.48x, which exceeds our internal guidelines of 1.35x to 1.40x, depending on property class. These internal guidelines were updated in July 2025 to 1.35x to 1.50x. Additionally, for loans with exposure over $1.0 million, the office portfolio has an average loan to value of 56.0% compared to internal guidelines of 60-75%, depending on property class. Our current measure is based off of the most recent appraisal on file, the majority of which are from origination.

Previous wording

As previously noted, portfolio segment limits are approved by our Board of Directors' Risk Committee. These segment limits incorporate loan commitments and are based off of total Tier 1 capital plus the allowable allowance for credit losses. In the second quarter of 2024, after considering the current environment and potential risks related to the office portfolio, the segment limit for the office portfolio was decreased from 65% to 50%, with the actual segment concentration at 38.6% as of March 31, 2025.

Current wording

As previously noted, portfolio segment limits are approved by our Board of Directors' Risk Committee. These segment limits incorporate loan commitments and are based off of total Tier 1 capital plus the allowable allowance for credit losses. In the second quarter of 2024, after considering the current environment and potential risks related to the office portfolio, the segment limit for the office portfolio was decreased from 65% to 50%, with the actual segment concentration at 39.4% as of June 30, 2025.

Previous wording

Net charge-offs for the three months ended March 31, 2025 totaled $3.1 million, compared to $4.3 million for the three months ended March 31, 2024. Charge-offs during the three months ended March 31, 2025 were primarily in the commercial real estate and loans to individual categories. 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, 2025 totaled $5.9 million, compared to $8.7 million for the six months ended June 30, 2024. Charge-offs during the six months ended June 30, 2025 were primarily in the commercial real estate and loans to individual categories. See discussions related to the provision for credit losses and loans for more information.

Previous wording

At March 31, 2025, shareholders’ equity was $1.4 billion, an increase of $41.9 million from December 31, 2024. The increase was primarily the result of $32.7 million in net income and a $21.3 million increase 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 $2.9 million in treasury stock sales and decreases resulting from $13.2 million of dividends paid to shareholders and $1.8 million of common stock repurchases. Cash dividends declared per common share were $0.13 for the three months ended March 31, 2025.

Current wording

At June 30, 2025, shareholders’ equity was $1.5 billion, an increase of $112.6 million from December 31, 2024. The increase was primarily the result of $66.1 million in net income, $45.9 million in common shares issued in conjunction with the Center acquisition and a $26.4 million increase 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 a $3.9 million increase related to the reissuance of treasury stock and decreases resulting from $27.4 million of dividends paid to shareholders and $2.3 million of common stock repurchases. Cash dividends declared per common share were $0.265 for the six months ended June 30, 2025.

Previous wording

In 2018, First Commonwealth Bank, the Company's banking subsidiary, issued $100 million in subordinated debt, of which $50 million remained outstanding at March 31, 2025, which under the regulatory rules qualifies as Tier II capital. As of March 31, 2025, this subordinated debt issuance increased the total risk-based capital ratio by 53 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, 2025, which under the regulatory rules qualifies as Tier II capital. As of June 30, 2025, this subordinated debt issuance increased the total risk-based capital ratio by 49 basis points.