Business context and reporting period
First Commonwealth Financial Corporation is a Pennsylvania-based financial holding company providing consumer and commercial banking, trust and wealth management, and insurance services, primarily in Pennsylvania and Ohio. This Form 10-K reports the fiscal year ended December 31, 2023; it is an annual report, not a standalone fourth-quarter filing.
On January 31, 2023, the Company acquired Centric Financial Corporation, issuing approximately 9.7 million shares. Centric added about $1.0 billion of assets at acquisition and expanded the Company’s presence in central and southeastern Pennsylvania.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $385.7 million | $312.2 million |
| Net interest margin, fully taxable-equivalent | 3.81% | 3.58% |
| Net income | $157.1 million | $128.2 million |
| Diluted earnings per share | $1.54 | $1.37 |
| Return on average assets / equity | 1.42% / 12.80% | 1.34% / 11.99% |
| Net cash from operating activities | $150.8 million | $151.4 million |
Net interest income rose 24% on a fully taxable-equivalent basis, reflecting higher asset yields and balance-sheet growth; increased funding costs partly offset those gains. Noninterest income declined 2% to $96.6 million, while noninterest expense increased 18% to $269.9 million, including $9.0 million of Centric-related costs. The effective tax rate was 20.5%.
At year-end, total assets were $11.46 billion, loans and leases were $8.97 billion, deposits were $9.19 billion, and shareholders’ equity was $1.31 billion. Loans grew 17% and deposits 15% from year-end 2022, with a substantial portion of the growth attributable to Centric. Commercial real estate (CRE) represented 34% of loans. The allowance for credit losses was $117.7 million, or 1.31% of loans.
Net charge-offs increased to $30.2 million from $7.1 million, including $17.0 million related to Centric-acquired loans. Nonperforming loans were $39.5 million, or 0.44% of loans, compared with $35.5 million, or 0.46%, in 2022. Criticized loans increased to $210.2 million from $132.9 million; classified assets rose to $87.1 million from $44.4 million.
Year-end funding included $597.8 million of short-term borrowings and $177.7 million of subordinated debentures. The net loans-to-deposits ratio was 96.29%. Management reported $4.72 billion of net available liquidity across internal and external sources; this is borrowing and other liquidity capacity, not cash on hand. Uninsured deposits were estimated at $2.5 billion, or 27% of deposits. The Company reported regulatory capital ratios above well-capitalized thresholds, including a 13.93% total capital ratio and 11.16% CET1 ratio at the holding-company level.
Cash and cash equivalents declined $7.3 million during 2023 to $147.0 million. Operating cash flow was $150.8 million; investing activities used $574.3 million, principally reflecting loan growth and securities purchases; financing activities provided $416.3 million. The annual common dividend declared was $0.495 per share.
Material changes versus 2022
- Centric’s acquisition drove significant asset, loan, deposit, share-count and expense growth; the Company issued $141.4 million of common stock consideration.
- Higher market rates increased loan and securities yields, but interest expense rose sharply: total interest expense reached $144.3 million versus $17.7 million, as deposit and borrowing costs repriced and customers shifted toward higher-yielding accounts and time deposits.
- The allowance increased in dollars, while its ratio to loans decreased from 1.35% to 1.31%. Net charge-offs rose materially, driven in part by acquired credits and a CRE charge-off.
- Available-for-sale securities had $125.6 million of gross unrealized losses at year-end, mainly attributed to higher market rates. Accumulated other comprehensive loss improved to $111.8 million from $137.7 million.
- Cash dividends declared per share increased from $0.475 to $0.495; the Company also repurchased $15.1 million of stock.
Outlook, risks and unusual items
The filing provides no quantified earnings or revenue guidance. Management discusses continued growth and diversification objectives, but future results are subject to interest rates, deposit competition, loan demand and credit quality. The Company’s interest-rate simulations show that a gradual 100-basis-point increase could raise 12-month net interest income by 1.59%, while an immediate 100-basis-point increase could raise it by 4.76%; these are model estimates, not forecasts, and depend on assumptions about customer and balance-sheet behavior.
- Funding and liquidity: A large share of deposits is payable on demand, and uninsured deposits expose the Company to potential withdrawals and funding-cost pressure. Management also identifies unrealized securities losses as a possible concern if securities must be sold for liquidity.
- Credit and CRE: CRE is 34% of loans; management cites economic, property-value, occupancy and refinancing risks. Credit indicators worsened in some respects, including higher criticized and classified balances and charge-offs.
- Regulatory changes: Because assets exceeded $10 billion, the Company expects the debit interchange fee cap to apply beginning July 1, 2024. Management estimates an income reduction of about $7.5 million in 2024 and $14.9 million annually in 2025. The filing also notes that FCB loses its Volcker Rule exemption beginning January 1, 2024, with no significant operational impact expected.
- Acquisition and estimates: Centric integration, purchase-accounting valuations and goodwill are important monitoring items. Goodwill was $363.7 million; no impairment was recorded. The allowance for credit losses depends on economic forecasts and other significant judgments.
- Other risks and contingencies: Interest-rate sensitivity, cyberattacks, third-party/vendor failures, regulatory compliance, competition, labor costs and economic uncertainty are identified risks. Management does not expect pending or threatened litigation to materially affect consolidated financial position; aggregate reasonably possible losses beyond any recorded liability were estimated at $0–$1 million.
The financial statements received an unqualified audit opinion, and the auditor reported effective internal control over financial reporting. The auditor identified the allowance for credit losses and Centric acquisition accounting as critical audit matters.
Most important facts for investors to verify
- Whether loan-credit trends, CRE exposures, criticized loans and net charge-offs stabilize, and whether the allowance remains adequate.
- How Centric performs after integration, including acquired-loan credit outcomes, realized cost or revenue benefits, and purchase-accounting accretion.
- Deposit retention, uninsured-deposit levels, deposit pricing and use of borrowings as funding costs evolve.
- The size and duration of securities valuation losses, and whether liquidity needs could require sales at a loss.
- The actual earnings impact of the interchange fee cap beginning in July 2024, compared with management’s estimates.
- Whether modeled interest-rate sensitivity and reported capital and liquidity capacity hold under changing economic and funding conditions.