First Commonwealth Financial Corp: Form 10-Q for the period ended Sep 30, 2025

comprises the majority of our operating revenue (net interest income before provision expense plus noninterest income), at 81.3% and 79.3% for the nine months ended September 30, 2025 and 2024, respectively.

The net interest margin on a fully taxable equivalent basis was 3.79% for the nine months ended September 30, 2025 and 3.55% for the nine months ended September 30, 2024. The net interest margin is affected by changes in the level of interest rates and the amount and composition of interest-earning assets and interest-bearing liabilities.

The taxable equivalent yield on interest-earning assets was 5.68% for the nine months ended September 30, 2025, an increase of five basis points compared to the 5.63% yield for the same period in 2024. The yield on interest-earning assets benefited from higher reinvestment rates related to the investment portfolio, resulting in the investment portfolio yield increasing by 41 basis points when compared to the nine months ended September 30, 2024. For the nine months ended September 30, 2025, seven basis points of the yield on interest-earning assets can be attributed to the recognition of $5.7 million in accretion of purchase accounting marks. For the nine months ended September 30, 2024, accretion of purchase accounting marks contributed $6.1 million, or eight basis points, to the yield on interest-earning assets.

The investment portfolio yield increased 41 basis points in comparison to the prior year as new volume rates were higher than the portfolio yield. The average investment portfolio for the nine months ended September 30, 2025 increased $112.9 million as compared to the nine months ended September 30, 2024 as a result of excess liquidity from growth in interest-bearing liabilities. Lower interest rates in the nine months ended September 30, 2025 compared to the prior year resulted in a 76 basis point decrease in the yield on interest-bearing deposits with banks, while the average balance decreased from $199.9 million in 2024 to $58.7 million in 2025.

The cost of interest-bearing liabilities decreased to 2.58% for the nine months ended September 30, 2025, from 2.84% for the same period in 2024. The cost of interest-bearing deposits decreased 16 basis points and short-term borrowings decreased 78 basis points in comparison to the same period last year. The cost of interest-bearing deposits was impacted by declines in market interest rates as well as changes in the mix of deposits due to growth in money market and time deposits. Comparing the nine months ended September 30, 2025 with the comparable period in 2024, average time deposits increased $259.1 million, or 17.4%, with a decrease in the cost of these deposits of 48 basis points. Contributing to the average growth in time deposits was an average of $50.6 million acquired as part of the Center acquisition. Other interest-bearing deposits increased on average $331.3 million, or 5.9%, compared to the nine months ended September 30, 2024 and the cost of these deposits decreased 11 basis points. Average growth in other-interest bearing deposits attributable to the Center acquisition totaled $81.9 million. Compared to the prior period, short-term borrowings decreased an average of $451.9 million primarily due to the payoff of $516.0 million in short-term borrowings related to the Federal Reserve Term Funding program in the fourth quarter of 2024. Long-term debt increased an average of $98.0 million compared to the prior period as a result of a $127.0 million FHLB borrowing entered into in the fourth quarter of 2024.

For the nine months ended September 30, 2025, changes in rates positively impacted net interest income by $17.9 million when compared to the same period in 2024. The yield on interest-earning assets positively impacted net interest income by $4.3 million and the decrease in the cost of interest-bearing liabilities positively impacted net interest income by $13.6 million.

Changes in the volume of interest-earning assets and interest-bearing liabilities positively impacted net interest income by $11.2 million for the nine months ended September 30, 2025, as compared to the same period in 2024. Higher levels of interest-earning assets resulted in an increase of $14.0 million in interest income, while changes in the volume and mix of interest-bearing liabilities increased interest expense by $2.8 million. Average interest-earning assets for the nine months ended September 30, 2025 increased $351.0 million, or 3.3%, compared to the same period in 2024. Average loans for the comparable period increased $379.3 million, or 4.2%, and average investments increased $112.9 million, or 7.5%. Average loans attributable to the Center acquisition for the nine month period ended September 30, 2025 totaled $164.0 million.

Net interest income was positively impacted by a $114.4 million increase in average net free funds for the nine months ended September 30, 2025 as compared to the corresponding period in 2024. Average net free funds are the excess of noninterest-bearing demand deposits, other noninterest-bearing liabilities and shareholders’ equity over noninterest-earning assets. The level of net free funds was impacted by growth in average noninterest-bearing demand deposits, as well as higher average shareholders' equity due to retained earnings and stock issued for the Center acquisition. Average noninterest-bearing demand deposits for the nine months ended September 30, 2025 increased $12.8 million, or 0.6%, compared to the same period in 2024.

Information appearing in Item 2 of this report under the caption “Market Risk” is incorporated by reference in response to this item.

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15 under the Securities Exchange Act of 1-934 (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms of the Securities and Exchange Commission.

There have been no material changes to the risk factors previously disclosed under Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2024.