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)
Non-Interest Expense (Continued)
Other professional fees and services increased $632 thousand due to additional expenses incurred for evaluating
pooled trust preferred collateralized debt obligations for fair value and impairment, professional development,
and sales training.
Other operating expenses increased $843 thousand primarily due to costs associated with higher loan
originations, and higher collection and repossession expense.
An impairment charge of $1.2 million was recorded in 2008 on low income housing partnerships because our
estimated future benefits could not support our carrying value.
Income Tax
Income tax expense increased $679 thousand in 2008 primarily due to decreases in tax free income and tax
credits, which resulted in an increase in our effective tax rate to 13.3% in 2008 compared to 11.4% in 2007.
Financial Condition
First Commonwealth’s total assets increased $542.3 million, or 9.2%, in 2008, primarily due to an increase in
loans of $720.6 million, or 19.5%, offset by a decrease in investments of $193.5 million, or 11.8%. First
Commonwealth’s total liabilities increased by $458.3 million, or 8.6%, in 2008. Total short-term borrowings
increased $798.5 million, or 225.4%, which was partially offset by a decrease in long-term debt of $271.7
million, or 49.6%, and a decrease in deposits of $66.9 million, or 1.5%.
Loan Portfolio
Following is a summary of our loan portfolio as of December 31:
Loans by Classification
(dollars in thousands)
2008 2007 2006 2005 2004
Amount % Amount % Amount % Amount % Amount %
Commercial, financial,
agricultural and other ...... $1,272,094 29% $ 926,904 25% $ 861,427 23% $ 729,962 20% $ 715,280 20%
Real estate-construction ...... 418,639 9 207,708 6 92,192 2 78,279 2 71,351 2
Real estate-residential ....... 1,215,193 28 1,237,986 33 1,346,503 36 1,213,223 33 1,164,707 33
Real estate-commercial ...... 1,016,651 23 861,077 23 935,635 25 987,798 27 988,611 28
Loans to individuals ......... 495,800 11 464,082 13 547,196 14 610,529 17 562,069 16
Net leases ................. -0- -0- 62 -0- 864 -0- 4,468 1 12,815 1
Total loans and leases net of
unearned income ......... $4,418,377 $3,697,819 $3,783,817 $3,624,259 $3,514,833
Total loans increased $720.6 million, or 19.5%, in 2008. The increase in loans was primarily in the commercial
portfolio, with increases of $345.2 million in the commercial, financial, agricultural and other category, $210.9
million in real estate – construction, which is primarily commercial construction, and $155.6 million in real
estate – commercial. Although there was significant growth in the loan portfolio, it was obtained while
maintaining our credit quality standards.
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