First Commonwealth Financial Corporation is a financial holding company that
is headquartered in Indiana, Pennsylvania. We provide a diversified array of
consumer and commercial banking services through our bank subsidiary, First
Commonwealth Bank. We also provide trust and wealth management services and
offer insurance products through FCB and our other operating subsidiaries.
FCB is a Pennsylvania bank and trust company. The Bank operated 110 community
banking offices throughout western and central Pennsylvania, four community
banking offices in Central Ohio, and loan production offices in Akron and Cleveland,
Ohio. The largest concentration of our branch offices is located within the
greater Pittsburgh metropolitan area in Allegheny, Butler, Washington and Westmoreland
counties, while our remaining offices are located in smaller cities, such as
Altoona, Johnstown and Indiana, Pennsylvania, and in towns and villages throughout
predominantly rural counties. The Bank also operates a network of 116 automated
teller machines, or ATMs, at various branch offices and offsite locations. All
of our ATMs are part of the NYCE and MasterCard/Cirrus networks, both of which
operate nationwide. The Bank is a member of the Allpoint ATM network, which
allows surcharge-free access to over 55,000 ATMs. The Bank is also a member
of the “Freedom ATM Alliance,” which affords cardholders surcharge-free
access to a network of over 670 ATMs in over 50 counties in Pennsylvania, Maryland,
New York, West Virginia and Ohio.
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. These loans are generally secured by a first lien position on the borrower’s
business assets as a secondary source of repayment. The type and amount of the
collateral varies depending on the amount and terms of the loan, but generally
may include accounts receivable, inventory, equipment or other assets. Loans
also may be supported by personal guarantees from the principals of the commercial
loan borrowers.
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.
Credit risk for commercial loans can arise from a borrower’s inability
or unwillingness to repay the loan, and in the case of secured loans, from a
shortfall in the collateral value in relation to the outstanding loan balance
in the event of a default and subsequent liquidation of collateral. The Company’s
Credit Policy establishes loan concentration limits by borrower, geography and
industry.
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. Our 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
23%, by principal amount, of our 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 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. The Company no longer
provides builder lot development lending.
Credit risk for real estate construction loans can arise from construction
delays, cost overruns, failure of the contractor to complete the project to
specifications and economic conditions that could impact demand for or supply
of the property being constructed.
Residential Real Estate Loans
During the third quarter of 2014, First Commonwealth reentered the residential
mortgage business, after a strategic decision in 2005 to discontinue mortgage
lending. 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.
Credit risk for residential real estate loans can arise from a borrower’s
inability or unwillingness to repay the loan or a shortfall in the value of
the residential real estate in relation to the outstanding loan balance in the
event of a default and subsequent liquidation of the real estate collateral.
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