Loans and Allowance for Credit Losses | Loans and Allowance for Credit Losses The following table provides outstanding balances related to each of our loan types: March 31, 2019 December 31, 2018 Originated Acquired Total Originated Acquired Total (dollars in thousands) Commercial, financial, agricultural and other $ 1,143,885 $ 36,435 $ 1,180,320 $ 1,100,947 $ 37,526 $ 1,138,473 Real estate construction 383,164 6,223 389,387 353,008 5,970 358,978 Residential real estate 1,325,740 239,609 1,565,349 1,313,645 248,760 1,562,405 Commercial real estate 1,946,482 191,894 2,138,376 1,922,349 201,195 2,123,544 Loans to individuals 593,481 4,157 597,638 585,347 5,392 590,739 Total loans $ 5,392,752 $ 478,318 $ 5,871,070 $ 5,275,296 $ 498,843 $ 5,774,139 Credit Quality Information As part of the on-going monitoring of credit quality within the loan portfolio, the following credit worthiness categories are used in grading our loans: Pass Acceptable levels of risk exist in the relationship. Includes all loans not classified as OAEM, substandard or doubtful. Other Assets Especially Mentioned (OAEM) Potential weaknesses that deserve management’s close attention. The potential weaknesses may result in deterioration of the repayment prospects or weaken the Company’s credit position at some future date. The credit risk may be relatively minor, yet constitute an undesirable risk in light of the circumstances surrounding the specific credit. No loss of principal or interest is expected. Substandard Well-defined weakness or a weakness that jeopardizes the repayment of the debt. A loan may be classified as substandard as a result of deterioration of the borrower’s financial condition and repayment capacity. Loans for which repayment plans have not been met or collateral equity margins do not protect the Company may also be classified as substandard. Doubtful Loans with the characteristics of substandard loans with the added characteristic that collection or liquidation in full, on the basis of presently existing facts and conditions, is highly improbable. The use of creditworthiness categories to grade loans permits management’s use of migration analysis to estimate a portion of credit risk. The Company’s internal creditworthiness grading system provides a measurement of credit risk based primarily on an evaluation of the borrower’s cash flow and collateral. Movement between these rating categories provides a predictive measure of credit losses and therefore assists in determining the appropriate level for the loan loss reserves. Category ratings are reviewed each quarter, at which time management analyzes the results, as well as other external statistics and factors related to loan performance. Loans that migrate towards higher risk rating levels generally have an increased risk of default, whereas loans that migrate toward lower risk ratings generally will result in a lower risk factor being applied to those related loan balances. The following tables represent our credit risk profile by creditworthiness: March 31, 2019 Commercial, financial, agricultural and other Real estate construction Residential real estate Commercial real estate Loans to individuals Total (dollars in thousands) Originated loans Pass $ 1,107,013 $ 374,201 $ 1,315,339 $ 1,894,745 $ 593,253 $ 5,284,551 Non-Pass OAEM 31,225 8,963 809 32,635 — 73,632 Substandard 5,647 — 9,592 19,102 228 34,569 Doubtful — — — — — — Total Non-Pass 36,872 8,963 10,401 51,737 228 108,201 Total $ 1,143,885 $ 383,164 $ 1,325,740 $ 1,946,482 $ 593,481 $ 5,392,752 Acquired loans Pass $ 30,627 $ 5,602 $ 236,594 $ 189,052 $ 4,143 $ 466,018 Non-Pass OAEM 5,672 621 725 423 — 7,441 Substandard 136 — 2,290 2,419 14 4,859 Doubtful — — — — — — Total Non-Pass 5,808 621 3,015 2,842 14 12,300 Total $ 36,435 $ 6,223 $ 239,609 $ 191,894 $ 4,157 $ 478,318 December 31, 2018 Commercial, financial, agricultural and other Real estate construction Residential real estate Commercial real estate Loans to individuals Total (dollars in thousands) Originated loans Pass $ 1,055,394 $ 337,367 $ 1,302,912 $ 1,880,139 $ 585,141 $ 5,160,953 Non-Pass OAEM 33,723 15,641 1,026 28,904 — 79,294 Substandard 11,830 — 9,707 13,306 206 35,049 Doubtful — — — — — — Total Non-Pass 45,553 15,641 10,733 42,210 206 114,343 Total $ 1,100,947 $ 353,008 $ 1,313,645 $ 1,922,349 $ 585,347 $ 5,275,296 Acquired loans Pass $ 31,399 $ 5,337 $ 245,637 $ 198,201 $ 5,377 $ 485,951 Non-Pass OAEM 5,890 633 736 441 — 7,700 Substandard 237 — 2,387 2,553 15 5,192 Doubtful — — — — — — Total Non-Pass 6,127 633 3,123 2,994 15 12,892 Total $ 37,526 $ 5,970 $ 248,760 $ 201,195 $ 5,392 $ 498,843 Portfolio Risks The credit quality of our loan portfolio can potentially represent significant risk to our earnings, capital and liquidity. First Commonwealth devotes substantial resources to managing this risk primarily through our credit administration department that develops and administers policies and procedures for underwriting, maintaining, monitoring and collecting loans. Credit administration is independent of lending departments and oversight is provided by the Credit Committee of the First Commonwealth Board of Directors. Criticized loans have been evaluated when determining the appropriateness of the allowance for credit losses, which we believe is adequate to absorb losses inherent to the portfolio as of March 31, 2019 . However, changes in economic conditions, interest rates, borrower financial condition, delinquency trends or previously established fair values of collateral factors could significantly change those judgmental estimates. Age Analysis of Past Due Loans by Segment The following tables delineate the aging analysis of the recorded investments in past due loans as of March 31, 2019 and December 31, 2018 . Also included in these tables are loans that are 90 days or more past due and still accruing because they are well-secured and in the process of collection. March 31, 2019 30 - 59 60 - 89 90 days Nonaccrual Total past Current Total (dollars in thousands) Originated loans Commercial, financial, agricultural and other $ 207 $ 1,037 $ 83 $ 4,390 $ 5,717 $ 1,138,168 $ 1,143,885 Real estate construction 507 — — — 507 382,657 383,164 Residential real estate 2,995 1,739 460 6,126 11,320 1,314,420 1,325,740 Commercial real estate 1,161 122 — 8,539 9,822 1,936,660 1,946,482 Loans to individuals 2,406 481 759 228 3,874 589,607 593,481 Total $ 7,276 $ 3,379 $ 1,302 $ 19,283 $ 31,240 $ 5,361,512 $ 5,392,752 Acquired loans Commercial, financial, agricultural and other $ — $ — $ — $ 100 $ 100 $ 36,335 $ 36,435 Real estate construction — — — — — 6,223 6,223 Residential real estate 98 35 171 1,816 2,120 237,489 239,609 Commercial real estate 185 — — 947 1,132 190,762 191,894 Loans to individuals 22 7 36 14 79 4,078 4,157 Total $ 305 $ 42 $ 207 $ 2,877 $ 3,431 $ 474,887 $ 478,318 December 31, 2018 30 - 59 60 - 89 90 days Nonaccrual Total past Current Total (dollars in thousands) Originated loans Commercial, financial, agricultural and other $ 130 $ 247 $ 92 $ 10,223 $ 10,692 $ 1,090,255 $ 1,100,947 Real estate construction 212 — — — 212 352,796 353,008 Residential real estate 3,697 710 790 6,238 11,435 1,302,210 1,313,645 Commercial real estate 492 69 — 3,437 3,998 1,918,351 1,922,349 Loans to individuals 2,362 532 662 207 3,763 581,584 585,347 Total $ 6,893 $ 1,558 $ 1,544 $ 20,105 $ 30,100 $ 5,245,196 $ 5,275,296 Acquired loans Commercial, financial, agricultural and other $ 1 $ — $ — $ 204 $ 205 $ 37,321 $ 37,526 Real estate construction — — — — — 5,970 5,970 Residential real estate 226 24 27 1,904 2,181 246,579 248,760 Commercial real estate — — — 1,042 1,042 200,153 201,195 Loans to individuals 46 12 11 15 84 5,308 5,392 Total $ 273 $ 36 $ 38 $ 3,165 $ 3,512 $ 495,331 $ 498,843 Nonaccrual Loans The previous tables summarize nonaccrual loans by loan segment. The Company generally places loans on nonaccrual status when the full and timely collection of interest or principal becomes uncertain, when part of the principal balance has been charged off and no restructuring has occurred, or the loans reach a certain number of days past due. Generally, loans 90 days or more past due are placed on nonaccrual status, except for consumer loans, which are placed on nonaccrual status at 150 days past due. When a loan is placed on nonaccrual, the accrued unpaid interest receivable is reversed against interest income and all future payments received are applied as a reduction to the loan principal. Generally, the loan is returned to accrual status when (a) all delinquent interest and principal becomes current under the terms of the loan agreement or (b) the loan is both well-secured and in the process of collection and collectability is no longer in doubt. Impaired Loans Management considers loans to be impaired when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. Determination of impairment is treated the same across all loan categories. When management identifies a loan as impaired, the impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole source for repayment of the loan is the operation or liquidation of collateral. When the loan is collateral dependent, the appraised value less estimated cost to sell is utilized. If management determines the value of the impaired loan is less than the recorded investment in the loan, impairment is recognized through an allowance estimate or a charge-off to the allowance. Troubled debt restructured loans on accrual status are also considered to be impaired loans. Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the financial difficulties experienced by the borrower, who could not obtain comparable terms from alternate financing sources. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income when received under the cash basis method. At March 31, 2019 and December 31, 2018 , there were no impaired loans held for sale. During the three months ended , March 31, 2019 and 2018 , there were no gains or losses recognized on sales of impaired loans. The following tables include the recorded investment and unpaid principal balance for impaired loans with the associated allowance amount, if applicable, as of March 31, 2019 and December 31, 2018 . Also presented are the average recorded investment in impaired loans and the related amount of interest recognized while the loan was considered impaired. Average balances are calculated using month-end balances of the loans for the period reported and are included in the table below based on their period-end allowance position. March 31, 2019 December 31, 2018 Recorded Unpaid Related Recorded Unpaid Related (dollars in thousands) Originated loans: With no related allowance recorded: Commercial, financial, agricultural and other $ 2,599 $ 9,100 $ 8,735 $ 16,442 Real estate construction — — — — Residential real estate 10,545 12,264 10,726 12,571 Commercial real estate 3,752 4,042 3,599 3,812 Loans to individuals 339 530 281 408 Subtotal 17,235 25,936 23,341 33,233 With an allowance recorded: Commercial, financial, agricultural and other 3,317 3,479 $ 1,012 3,042 3,181 $ 797 Real estate construction — — — — — — Residential real estate 713 713 119 486 495 107 Commercial real estate 7,017 7,035 914 1,866 1,878 596 Loans to individuals — — — — — — Subtotal 11,047 11,227 2,045 5,394 5,554 1,500 Total $ 28,282 $ 37,163 $ 2,045 $ 28,735 $ 38,787 $ 1,500 March 31, 2019 December 31, 2018 Recorded Unpaid Related Recorded Unpaid Related (dollars in thousands) Acquired loans With no related allowance recorded: Commercial, financial, agricultural and other $ 100 $ 100 $ 73 $ 73 Real estate construction — — — — Residential real estate 1,937 2,369 2,031 2,604 Commercial real estate 947 1,962 1,042 2,052 Loans to individuals 14 16 15 17 Subtotal 2,998 4,447 3,161 4,746 With an allowance recorded: Commercial, financial, agricultural and other — — $ — 131 131 $ 131 Real estate construction — — — — — — Residential real estate — — — — — — Commercial real estate — — — — — — Loans to individuals — — — — — — Subtotal — — — 131 131 131 Total $ 2,998 $ 4,447 $ — $ 3,292 $ 4,877 $ 131 For the Three Months Ended March 31, 2019 2018 Originated Loans Acquired Loans Originated Loans Acquired Loans Average Interest Average Interest Average Interest Average Interest (dollars in thousands) With no related allowance recorded: Commercial, financial, agricultural and other $ 2,707 $ 13 $ 439 $ — $ 8,130 $ 10 $ 411 $ — Real estate construction — — — — — — — — Residential real estate 10,798 72 1,981 1 10,401 63 678 1 Commercial real estate 3,994 36 982 1 5,510 31 907 — Loans to individuals 324 1 14 — 354 2 17 — Subtotal 17,823 122 3,416 2 24,395 106 2,013 1 With an allowance recorded: Commercial, financial, agricultural and other 3,068 3 — — 17,720 66 — — Real estate construction — — — — — — — — Residential real estate 604 5 — — 706 — 93 — Commercial real estate 3,278 1 — — 1,960 1 118 — Loans to individuals — — — — — — — — Subtotal 6,950 9 — — 20,386 67 211 — Total $ 24,773 $ 131 $ 3,416 $ 2 $ 44,781 $ 173 $ 2,224 $ 1 Unfunded commitments related to nonperforming loans were $0.1 million at March 31, 2019 and $1.6 million at December 31, 2018 . After consideration of the requirements to draw and available collateral related to these commitments, a reserve of $12 thousand was established for these off balance sheet exposures at both March 31, 2019 and December 31, 2018 . The following table provides detail as to the total troubled debt restructured loans and total commitments outstanding on troubled debt restructured loans: March 31, 2019 December 31, 2018 (dollars in thousands) Troubled debt restructured loans Accrual status $ 9,120 $ 8,757 Nonaccrual status 5,874 11,761 Total $ 14,994 $ 20,518 Commitments Letters of credit $ 60 $ 60 Unused lines of credit 263 1,027 Total $ 323 $ 1,087 The following tables provide detail, including specific reserves and reasons for modification, related to loans identified as troubled debt restructurings: For the Three Months Ended March 31, 2019 Type of Modification Number Extend Modify Modify Total Post- Specific (dollars in thousands) Commercial, financial, agricultural and other 1 $ — $ — $ 61 $ 61 $ 62 $ — Residential real estate 6 17 49 514 580 570 40 Commercial real estate 2 — 556 242 798 767 — Loans to individuals 3 — — 48 48 46 — Total 12 $ 17 $ 605 $ 865 $ 1,487 $ 1,445 $ 40 For the Three Months Ended March 31, 2018 Type of Modification Number Extend Modify Modify Total Post- Specific (dollars in thousands) Commercial, financial, agricultural and other 2 $ 4,709 $ — $ 162 $ 4,871 $ 3,942 $ 531 Residential real estate 11 20 75 346 441 404 17 Commercial real estate 1 3,017 — — 3,017 2,994 227 Loans to individuals 4 — 28 30 58 53 — Total 18 $ 7,746 $ 103 $ 538 $ 8,387 $ 7,393 $ 775 The troubled debt restructurings included in the above tables are also included in the impaired loan tables provided earlier in this note. Loans defined as modified due to a change in rate may include loans that were modified for a change in rate as well as a re-amortization of the principal and an extension of the maturity. For the three months ended March 31, 2019 and 2018 , $0.6 million and $0.1 million , respectively, of total rate modifications represent loans with modifications to the rate as well as payment as a result of re-amortization. For both 2019 and 2018 the changes in loan balances between the pre-modification balance and the post-modification balance are due to customer payments. A troubled debt restructuring is considered to be in default when a restructured loan is 90 days or more past due. The following table provides information related to loans that were restructured within the past twelve months and that were considered to be in default during the three months ended March 31 : 2019 2018 Number of Recorded Number of Recorded (dollars in thousands) Commercial, financial, agricultural and other — $ — 1 $ 940 Loans to individuals 1 10 — — Total 1 $ 10 1 $ 940 The following tables provide detail related to the allowance for credit losses: For the Three Months Ended March 31, 2019 Commercial, Real estate Residential Commercial Loans to Total (dollars in thousands) Allowance for credit losses: Originated loans: Beginning balance $ 19,235 $ 2,002 $ 3,934 $ 18,382 $ 4,033 $ 47,586 Charge-offs (483 ) — (136 ) (299 ) (1,110 ) (2,028 ) Recoveries 76 42 81 41 114 354 Provision (credit) 987 210 271 1,094 1,126 3,688 Ending balance 19,815 2,254 4,150 19,218 4,163 49,600 Acquired loans: Beginning balance 139 — 35 4 — 178 Charge-offs (526 ) — (45 ) — (5 ) (576 ) Recoveries 11 — 24 — 9 44 Provision (credit) 394 — 21 (4 ) (4 ) 407 Ending balance 18 — 35 — — 53 Total ending balance $ 19,833 $ 2,254 $ 4,185 $ 19,218 $ 4,163 $ 49,653 Ending balance: individually evaluated for impairment $ 1,012 $ — $ 119 $ 914 $ — $ 2,045 Ending balance: collectively evaluated for impairment 18,821 2,254 4,066 18,304 4,163 47,608 Loans: Ending balance 1,180,320 389,387 1,565,349 2,138,376 597,638 5,871,070 Ending balance: individually evaluated for impairment 5,627 — 3,938 11,111 — 20,676 Ending balance: collectively evaluated for impairment 1,174,693 389,387 1,561,411 2,127,265 597,638 5,850,394 For the Three Months Ended March 31, 2018 Commercial, Real estate Residential Commercial Loans to Total (dollars in thousands) Allowance for credit losses: Originated loans: Beginning balance $ 23,418 $ 1,349 $ 2,753 $ 17,328 $ 3,404 $ 48,252 Charge-offs (290 ) — (455 ) (168 ) (1,169 ) (2,082 ) Recoveries 256 1 75 69 195 596 Provision (credit) 4,148 (236 ) 768 1,265 986 6,931 Ending balance 27,532 1,114 3,141 18,494 3,416 53,697 Acquired loans: Beginning balance 11 — 6 29 — 46 Charge-offs — — (16 ) — (4 ) (20 ) Recoveries 7 6 17 — 7 37 Provision (credit) 2 (6 ) 6 (27 ) (3 ) (28 ) Ending balance 20 — 13 2 — 35 Total ending balance $ 27,552 $ 1,114 $ 3,154 $ 18,496 $ 3,416 $ 53,732 Ending balance: individually evaluated for impairment $ 9,045 $ — $ 287 $ 2,141 $ — $ 11,473 Ending balance: collectively evaluated for impairment 18,507 1,114 2,867 16,355 3,416 42,259 Loans: Ending balance 1,131,594 246,961 1,434,623 2,027,072 541,055 5,381,305 Ending balance: individually evaluated for impairment 33,278 — 6,853 10,360 — 50,491 Ending balance: collectively evaluated for impairment 1,098,316 246,961 1,427,770 2,016,712 541,055 5,330,814 |