KBRA Affirms Ratings for First Commonwealth Financial Corporation

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Indiana, PA-based First Commonwealth Financial Corporation (NYSE: FCF) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for its subsidiary, First Commonwealth Bank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

FCF’s ratings are supported by its durable earnings profile that has generated an average ROA of 1.25% over the last five years, which is supported by a healthy NIM through various interest rate cycles, and benefits from its branch-based deposit franchise that has a solid footprint in rural and urban markets that has historically experienced lower relative interest rate sensitivity. The core deposit base also accounts for 92% of total funding, and estimated uninsured deposits at 4Q24 were only 27% of total deposits with 1.3x coverage from total liquidity sources. The company’s NIB deposit base (23% of total deposits) also contributed to the company’s lower "through the cycle" deposit funding costs reflected by a 2.0% cost of deposits for 4Q24. The company’s revenue base also benefits from a diversified revenue stream of noninterest income to total revenue (20%), comprised mostly of stable, durable sources that include deposit account fees, wealth and trust fees, and interchange fees. Regarding capital, the company has rebuilt capital following the Centric Financial ("Centric")acquisition in 2023 with core capital as reflected by a CET1 ratio of 12.1% more in line with the peer average. KBRA considers the company’s loss absorption capacity derived from the LLR, in combination with its solid capital position, to be suitable for its risk profile. The company’s credit management practices appear robust as it has maintained solid credit performance throughout the current economic cycle. FCF’s loan portfolio is well diversified and includes sufficient concentration limits established with a geographic focus in parts of Western PA and OH. The 2023 and 2024 weakening in NPA and NCO trends has been primarily driven by the PCD loan portfolio acquired as part of the Centric acquisition which had a 3.3% credit mark at close. KBRA believes that FCF has significantly worked through the challenged acquired credits reflective of the improvement of criticized and classified loans in 4Q24.

Rating Sensitivities

A rating upgrade is not expected in the near term. However, further geographic expansion along with increased, durable noninterest revenue, and maintenance of solid asset quality and higher capital metrics may lead to a rating upgrade over the medium to longer term. With a Stable Outlook, a rating downgrade is unlikely, though significant deterioration in credit quality generating elevated credit costs which adversely impact earnings and deplete capital, could result in negative rating action.

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