First Commonwealth Financial(FCF) - 2024 Q4 - Annual Report

Credit Risk and Loan Portfolio - As of December 31, 2024, commercial real estate mortgage loans comprised approximately 35% of the company's loan portfolio, which involves a greater degree of credit risk compared to residential loans[128] - The company maintains an allowance for credit losses, which reflects management's best estimate of credit losses within the existing loan portfolio, subject to change based on economic conditions and credit risks[127] - Economic conditions, including inflation and interest rates, could adversely impact the company's profitability and the credit quality of its loans[158] Liquidity and Deposits - Approximately 27% of the company's deposits were either uninsured or otherwise unsecured as of December 31, 2024, indicating reliance on these deposits for liquidity[129] - The company has experienced unrealized losses on its available-for-sale securities portfolio due to increased market interest rates, which could affect liquidity if securities must be sold at a loss[131] - The company may need to raise additional capital in the future to meet commitments and business needs, particularly if asset quality or earnings deteriorate significantly[161] - Access to capital markets may be limited, potentially increasing capital costs and adversely affecting liquidity[162] Revenue Dependence and Subsidiary Risks - The company relies on dividends from its subsidiary bank for most of its revenue, and any inability of the subsidiary to pay dividends could materially affect the company's financial condition[142] - The inability to receive dividends from its subsidiary could have a material adverse effect on First Commonwealth's financial condition and operations[142] Competition and Market Conditions - Competition from other financial institutions in loan origination and deposit attraction may pressure the company's profitability, as competitors may offer more favorable pricing[148] - The company faces intense competition in attracting and retaining skilled personnel, which is critical for business success[166] - The trading volume of the company's common stock is lower than that of larger financial services companies, which could lead to price volatility[153] Regulatory and Economic Factors - Regulatory changes could impose additional costs and limit the types of financial services the company can offer, affecting its growth and operations[149] - Changes in federal, state, or local tax laws may increase effective tax rates, negatively affecting the company's financial performance[160] - The U.S. government's long-term sovereign credit rating was downgraded from AAA to AA+ by Fitch due to political disputes, which could adversely impact financial markets and economic conditions[159] Operational and Technological Risks - Labor shortages and supply chain constraints are impacting both the company's operations and its customers' operations, potentially leading to reduced cash flow and loan repayment difficulties[132] - The company faces risks associated with the implementation of new lines of business and technological advancements, which may not achieve initial timetables or profitability targets[137] - The financial services industry is undergoing rapid technological change, and the company must effectively implement new technology-driven products and services to remain competitive[138] - The reliance on external vendors for core processing systems exposes the company to operational risks if these vendors fail to meet service level agreements[145] Cybersecurity and Information Risks - The company faces significant risks from cyber-attacks, which could lead to unauthorized access and loss of confidential information, potentially harming its financial condition and operations[143] - The company depends on accurate information from customers and counterparties for credit decisions, and reliance on misleading information could adversely impact its financial condition[146] Changes in Accounting and Reporting - Changes in accounting standards could materially impact the company's financial statements and reporting[165] - The company relies on analytical and forecasting models for estimating expected credit losses, which may prove inadequate under certain market conditions[133]