Strength and Stability - SNL Financial

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
Results of Operations—2008 Compared to 2007 (Continued)
Net Interest Income (Continued)
The following table sets forth certain information regarding changes in net interest income attributable to
changes in the volumes of interest-earning assets and interest-bearing liabilities and changes in the rates for the
periods indicated:
Analysis of Year-to-Year Changes in Net Interest Income
(dollars in thousands)
Total
Change
2008 Change from 2007 2007 Change from 2006
Change Due
to Volume
Change Due
to Rate (a)
Total
Change
Change Due
to Volume
Change Due
to Rate (a)
Interest-earning assets:
Interest-bearing deposits with banks ..... $ (27) $ (11) $ (16) $ (62) $ (65) $ 3
Tax-free investment securities .......... (589) (987) 398 856 1,618 (762)
Taxable investment securities .......... (323) (544) 221 (7,997) (10,001) 2,004
Federal funds sold ................... (155) (152) (3) 15 17 (2)
Loans ............................. (2,405) 28,181 (30,586) 5,213 (1,398) 6,611
Total interest income ............... (3,499) 26,487 (29,986) (1,975) (9,829) 7,854
Interest-bearing liabilities:
NOW and super NOW accounts .... (5,236) 145 (5,381) 287 181 106
MMDA and savings accounts .......... (6,148) 1,326 (7,474) 3,512 (638) 4,150
Time deposits ....................... (19,869) (6,333) (13,536) 20,517 10,090 10,427
Short-term borrowings ................ 3,386 20,122 (16,736) (14,006) (12,953) (1,053)
Long-term debt ..................... (2,848) (3,454) 606 (6,704) (7,150) 446
Total interest expense .............. (30,715) 11,806 (42,521) 3,606 (10,470) 14,076
Net interest income .............. $27,216 $14,681 $ 12,535 $ (5,581) $ 641 $ (6,222)
(a)
Changes in interest income or expense not arising solely as a result of volume or rate variances are allocated to rate
variances due to interest sensitivity of consolidated assets and liabilities.
Provision for Credit Losses
The provision for credit losses is determined based on management’s estimates of the appropriate level of
allowance for credit losses needed to absorb probable losses inherent in the loan portfolio, after giving
consideration to charge-offs and recoveries for the period.
The provision for credit losses increased $13.1 million in 2008 compared to 2007, and exceeded net charge offs
by $10.4 million. The increase was primarily a result of an $8.8 million provision added in 2008 for four
out-of-market commercial real estate construction loans. Loan growth of $720.6 million also contributed to the
increase in the provision. The allowance for credit losses was $52.8 million at year-end 2008, which represents a
ratio of 1.29% of average loans compared to $42.4 million and 1.15% at December 31, 2007.
The increase in charge offs in real estate – commercial from $1.8 million in 2007 to $3.5 million 2008 was
primarily the result of two in-market loans that have been in the work out process for multiple years and are not
indicative of the credit quality of the portfolio as a whole.
Net credit losses for 2008 increased $2.4 million. Net credit losses as a percentage of average loans outstanding
increased to 0.31% at December 31, 2008 compared to 0.28% at December 31, 2007. For an analysis of credit
quality, see the “Non-Performing Loans” and “Allowance for Credit Losses” sections of this discussion.
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