First Commonwealth Financial Profile
First Commonwealth Financial Corporation operates as the bank holding company for First Commonwealth Bank (FCB or the bank) that provides a diversified array of consumer and commercial banking services.
The company also provides trust and wealth management services and offer insurance products through FCB and its other operating subsidiaries.
FCB is a Pennsylvania bank and trust company. The company operate community banking offices throughout western and central Pennsylvania, and northeastern, central and southwestern Ohio, as well as corporate banking centers in Pittsburgh, Pennsylvania, and Columbus, Canton and Cleveland, Ohio, and mortgage banking offices in Wexford, Pennsylvania, and Hudson, Westlake and Lewis Center, Ohio. The company also operates a network of automated teller machines, or ATMs, at various branch offices and offsite locations. All of the company’s ATMs are part of the NYCE and MasterCard/Cirrus networks, both of which operate nationwide. The company is a member of the Allpoint ATM network, which allows surcharge-free access to various ATMs. The company is also a member of the Freedom ATM Alliance, which affords cardholders surcharge-free access to a network of over ATMs in over 50 counties in Pennsylvania, Maryland, New York, and Ohio.
Loan Portfolio
Commercial, Financial, Agricultural and Other
Commercial, financial, agricultural and other loans represent term loans used to acquire business assets or revolving lines of credit used to finance working capital.
Commercial loans are underwritten for credit-worthiness based on the borrowers’ financial information, cash flow, net worth, prior loan performance, existing debt levels, type of business and the industry in which it operates. Advance rates on commercial loans are generally collateral-dependent and are determined based on the type of equipment, the mix of inventory and the quality of receivables.
Commercial Real Estate
Commercial real estate loans represent term loans secured by owner-occupied and non-owner occupied properties. Commercial real estate loans are underwritten based on an evaluation of each borrower’s cash flow as the principal source of loan repayment, and are generally secured by a first lien on the property as a secondary source of repayment. The company’s underwriting process for non-owner occupied properties evaluates the history of occupancy, quality of tenants, lease terms, operating expenses and cash flow. Commercial real estate loans are subject to the same credit evaluation as previously described for commercial loans. Approximately 20%, by principal amount, of its commercial real estate loans involve owner-occupied properties.
For loans secured by commercial real estate, at origination the company obtains current and independent appraisals from licensed or certified appraisers to assess the value of the underlying collateral. The company’s general policy for commercial real estate loans is to limit the terms of the loans to not more than 10 years with loan-to-value ratios not exceeding 80% on owner-occupied and income producing properties. For non-owner occupied commercial real estate loans, the loan terms are generally aligned with the property’s lease terms and are generally underwritten with a loan-to-value ratio not exceeding 75%.
Credit risk for commercial real estate loans can arise from economic conditions that could impact market demand, rental rates and property vacancy rates and declines in the collateral value in relation to the outstanding loan balance in the event of a default and subsequent liquidation of collateral.
Real Estate Construction
Real estate construction represents financing for real estate development. The underwriting process for these loans is designed to confirm that the project will be economically feasible and financially viable upon completion and is generally conducted as though the company would be providing permanent financing for the project. Development and construction loans are secured by the properties under development or construction, and personal guarantees are typically obtained as a secondary repayment source. The company considers the financial condition and reputation of the borrower and any guarantors and generally requires a global cash flow analysis in order to assess the overall financial position of the developer.
Construction loans to residential builders are generally made for the construction of residential homes for which a binding sales contract exists and for which the prospective buyers have been pre-qualified for permanent mortgage financing by either third-party lenders or the company. These loans are generally for a period of time sufficient to complete construction.
Residential construction loans to individuals generally provide for the payment of interest only during the construction phase. At the end of the construction phase, substantially all of the company’s loans automatically convert to permanent mortgage loans and can either be retained in its loan portfolio or sold on the secondary market.
Residential Real Estate
Residential real estate loans include first lien mortgages used by the borrower to purchase or refinance a principal residence and home equity loans and lines of credit secured by residential real estate. The company’s underwriting process for these loans determines credit-worthiness based upon debt-to-income ratios, collateral values and other relevant factors.
The residential real estate portfolio includes both conforming and non-conforming mortgage loans. Conforming mortgage loans represent loans originated in accordance with underwriting standards set forth by the government-sponsored entities, including the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association, which serve as the primary purchasers of loans sold in the secondary mortgage market by mortgage lenders. These loans are generally collateralized by one-to-four-family residential real estate, have loan-to-collateral value ratios of 80% or less (or have mortgage insurance to insure down to 80%), and are made to borrowers in good credit standing. Non-conforming mortgage loans represent loans that generally are not saleable in the secondary market to the government-sponsored entities due to factors such as the credit characteristics of the borrower, the underlying documentation, the loan-to-value ratio, or the size of the loan.
Home equity lines of credit and other home equity loans are originated by the company for typically up to 90% of the appraised value, less the amount of any existing prior liens on the property. Additionally, the company’s credit policy requires borrower FICO scores of not less than 661 and a debt-to-income ratio of not more than 43%.
Loans to Individuals
The loans to individuals category includes consumer installment loans, personal lines of credit, consumer credit cards and indirect automobile and recreational vehicle loans. Credit risk for consumer loans can arise from a borrower’s inability or unwillingness to repay the loan, and in the case of secured loans, by a shortfall in the value of the collateral in relation to the outstanding loan balance in the event of a default and subsequent liquidation of collateral.
The underwriting criteria for automobile loans generally allows for such loans to be made for up to 100% of the purchase price or the retail value of the vehicle as listed by the National Automobile Dealers Association. The terms of the loan are determined by the age and condition of the collateral, and range from 36 to 84 months. Collision insurance policies are required on all automobile loans. The company also makes other consumer loans, which may or may not be secured. The terms of secured consumer loans generally depend upon the nature of the underlying collateral. Unsecured consumer loans and consumer credit cards usually do not exceed $35 thousand. Unsecured consumer loans usually have a term of no longer than 36 months.
Deposits
Deposits are the company’s primary source of funds to support its revenue-generating assets. The company offers traditional deposit products to businesses and other customers with a variety of rates and terms. Deposits at the company are insured by the FDIC up to statutory limits.
Investment Portfolio
As of December 31, 2022, the company’s investment portfolio included mortgage-backed securities—residential; mortgage-backed securities—commercial; other government-sponsored enterprises; obligations of states and political subdivisions; and corporate securities.
Supervision and Regulation
The company is registered as a financial holding company under the Bank Holding Company Act of 1956, as amended (BHC Act); and is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (FRB).
Transactions between FCB, on the one hand, and the company and its other subsidiaries, on the other hand, are regulated under federal banking laws. The Federal Reserve Act imposes quantitative and qualitative requirements and collateral requirements on covered transactions by FCB with, or for the benefit of, its affiliates, and generally requires those transactions to be on terms at least as favorable to FCB as if the transaction were conducted with an unaffiliated third party.
The company is also under the jurisdiction of the Securities and Exchange Commission (SEC) and various state securities commissions for matters relating to the offer and sale of its securities and is subject to the SEC rules and regulations relating to periodic reporting, proxy solicitation and insider trading.
FCB is a state bank chartered under the Pennsylvania Banking Code and is not a member of the FRB. As such, FCB is subject to the supervision of, and is regularly examined by, both the Federal Deposit Insurance Corporation (FDIC) and the Pennsylvania Department of Banking and Securities and is required to furnish quarterly reports to both agencies. The approval of the Pennsylvania Department of Banking and Securities and FDIC is also required for FCB to establish additional branch offices or merge with or acquire another banking institution.
The company is subject to a number of federal and state consumer protection laws that extensively govern its relationship with its customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act and these laws’ respective state-law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and practices.
Deposits of FCB are insured up to applicable limits by the FDIC and are subject to deposit insurance assessments to maintain the Deposit Insurance Fund (DIF).
As of December 31, 2022, FCB was a ‘well-capitalized’ bank as defined by the Federal Deposit Insurance Act, as amended (FDIA).
History
First Commonwealth Financial Corporation was founded in 1934.
