Strength and Stability - SNL Financial

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 1A. Risk Factors
As a financial services company, we are subject to a number of risks, many of which are outside of our control.
These risks include, but are not limited to:
Increases to the allowance for credit losses may cause our earnings to decrease.
Our customers may not repay their loans according to the original terms, and the collateral securing the payment
of those loans may be insufficient to pay any remaining loan balance. This may result in significant loan losses,
which could have a material adverse effect on our operating results. We make various assumptions and
judgments about the future performance of our loan portfolio, including the creditworthiness of our borrowers
and the value of the real estate and other assets serving as collateral for the repayment of loans. In determining
the amount of the allowance for credit losses, we rely on loan quality reviews, past experience, and an evaluation
of economic conditions, among other factors. If our assumptions prove to be incorrect, our allowance for credit
losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to the allowance.
In addition, bank regulators periodically review our allowance for credit losses and may require us to increase
our provision for credit losses or charge off all or a portion of non-performing loans. Any increase in our
allowance for credit losses or loan charge-offs as required by these regulatory authorities could have a material
adverse effect on our results of operations and/or financial condition.
Declines in value may adversely impact the carrying amount of our investment portfolio and result in
other-than-temporary impairment charges.
As of December 31, 2008, we had single issuer trust preferred securities and trust preferred collateralized debt
obligations with an aggregate book value of $121.7 million and an unrealized loss of approximately $48.0
million and equity securities with an aggregate book value of $65.1 million and an unrealized loss of
approximately $519 thousand. As a result of recent adverse economic banking conditions, we incurred otherthan-temporary
impairment charges in our securities portfolio of approximately $13.0 million during 2008. We
may be required to record additional impairment charges on other investment securities if they suffer a decline in
value that is considered other-than-temporary. If the credit quality of the securities in our investment portfolio
deteriorates, we may also experience a loss in interest income from the suspension of either interest or dividend
payments. Numerous factors, including lack of liquidity for resales of certain investment securities, absence of
reliable pricing information for investment securities, adverse changes in business climate or adverse actions by
regulators could have a negative effect on our investment portfolio in future periods. If an impairment charge is
significant enough it could affect the ability of First Commonwealth Bank to upstream dividends to us, which
could have a material adverse effect on our liquidity and our ability to pay dividends to shareholders and could
also negatively impact our regulatory capital ratios and result in us not being classified as “well-capitalized” for
regulatory purposes.
Weakening economic conditions may have a negative impact on our results of operations and financial
condition.
During 2008, the global financial markets were in turmoil, and the equity and credit markets experienced extreme
volatility, which caused already weak economic conditions to worsen. Weak economic conditions, including high
and increasing levels of unemployment, reduced consumer spending and declining equity and real estate values
could limit the demand for loans by creditworthy consumers and businesses, reduce the supply of low-cost
deposits, impair the ability of our borrowers to repay their loans and reduce the value of collateral supporting
those loans. Declines in equity valuations also reduce fees generated by our trust and other wealth management
operations, which will negatively impact our non-interest income. Our financial condition and results of
operations could be materially impacted if these conditions were to persist.
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