First Commonwealth Announces Second Quarter 2013 Financial Results; Declares Quarterly Dividend

PR Newswire

INDIANA, Pa., July 24, 2013 /PRNewswire/ -- First Commonwealth Financial Corporation (FCF) today reported net income of $5.8 million, or $0.06 diluted earnings per share, for the second quarter ended June 30, 2013, as compared to net income of $12.3 million, or $0.12 diluted earnings per share, in the second quarter of 2012. The decrease in net income was due to higher provision for credit losses, primarily related to one legacy credit, and decreases in net interest income and noninterest income. For the six months ended June 30, 2013, net income was $16.4 million, or $0.17 diluted earnings per share, compared to net income of $23.4 million, or $0.22 diluted earnings per share, for the comparable period in 2012. The decrease in net income was primarily the result of a higher provision for credit losses and a lower amount of gains on sale of commercial loans held for sale, partially offset by significantly lower noninterest expense.

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"Overall growth continues to be tempered as a result of our credit quality improvement activities, including charge-offs, exiting excessive exposures and the sale of problem credits," stated T. Michael Price, President and Chief Executive Officer.  "Collectively, these activities have significantly improved our credit quality metrics and our overall risk profile.  Our path to becoming a best-in-class performer begins with lower long-term credit costs, and our second quarter results demonstrate our progress in this regard."

Net Interest Income and Net Interest Margin

Second quarter 2013 net interest income, on a fully taxable equivalent basis, was $46.7 million, a $1.3 million, or 3%, decrease as compared to the second quarter of 2012. The decrease was the result of a 26 basis point decline in the net interest margin, partially offset by a $238.2 million increase in average earning assets. Net interest margin was 3.35%, 3.45% and 3.61% for the three-month periods ended June 30, 2013, March 31, 2013 and June 30, 2012, respectively. For the six months ended June 30, 2013 net interest income, on a fully taxable equivalent basis, decreased $4.2 million to $93.2 million as compared to the same period of 2012. The decline was primarily due to a 28 basis point reduction in the net interest margin.  The 12-month change in net interest income was impacted by $1.0 million of delinquent interest recognized in the first quarter of 2012 for one commercial loan that paid off. The net interest margin for the six months ended June 30, 2013 and 2012 was 3.40% and 3.68%, respectively. The current low interest rate environment is causing net interest margin compression.  The negative effects of the current low interest rate environment were partially offset by a $200.5 million, or 4%, increase in interest-earning assets over the twelve-month period. 

Average loan growth for the quarter ended June 30, 2013, was $40.2 million compared to the prior quarter and $112.8 million over the past 12 months.  Average deposits increased $129.6 million over the past 12 months, including an $80.9 million, or 10%, increase in noninterest-bearing demand checking accounts. Demand accounts currently comprise 18% of total average deposits. Changes in the second quarter 2013 average deposit mix also include $249.3 million of purchased wholesale deposits. The wholesale deposit purchase represented an alternative to borrowed funds and an opportunity to extend funding terms at more favorable rates than retail deposits.

Credit Quality

The provision for credit losses was $10.8 million and $15.3 million for the three and six months ended June 30, 2013, respectively, as compared to $4.3 million and $8.1 million in the prior-year periods. The increase in provision expense is primarily related to the $13.1 million charge-off of an $18.6 million credit relationship to a local real estate developer due to deterioration in expected cash flow. This loan was classified as nonperforming in 2009 and currently has a $2.8 million net remaining balance. In addition, a $3.5 million loan for real estate development in Florida, classified as nonperforming in 2009, was sold in the second quarter of 2013, resulting in a gain of $0.3 million.

For the quarter ended June 30, 2013, nonperforming loans were $73.1 million, or 1.73% of total loans, a decrease of $5.2 million from March 31, 2013 and $11.8 million from June 30, 2012.

During the second quarter of 2013, net charge-offs were $15.6 million compared to $3.4 million in the second quarter of 2012. For the six months ended June 30, 2013, net charge-offs were $25.0 million, or 1.19% of average loans on an annualized basis, compared to $7.6 million, or 0.37% of average loans on an annualized basis, for the same period in 2012. 

The allowance for credit losses as a percentage of total loans outstanding was 1.36%, 1.48% and 1.48% for June 30, 2013, March 31, 2013 and June 30, 2012, respectively.

Other Real Estate Owned ("OREO") acquired through foreclosure was $15.6 million at June 30, 2013, as compared to $10.9 million and $19.1 million at March 31, 2013 and June 30, 2012, respectively. During the second quarter of 2013, one loan relationship for $4.8 million was foreclosed and transferred to OREO.

Noninterest Income

Noninterest income, excluding net security gains, decreased $1.2 million, or 7%, in the second quarter of 2013 compared to the same period last year. The decrease is primarily the result of lower gains on the sale of troubled commercial loans of $1.0 million as compared to the second quarter of 2012.

For the six months ended June 30, 2013, noninterest income, excluding net security gains, decreased $3.7 million, or 11%, when compared to the same period of 2012, primarily attributable to $2.9 million of lower gains on the sale of troubled commercial loans. Contributing to the 2013 decrease was $0.9 million in revenue from an OREO property that was sold in the first quarter of 2012.

There were no significant net security gains for the three and six months ended June 30, 2013. First Commonwealth has not incurred any other-than-temporary impairment charges in the investment portfolio since the third quarter of 2010.

Noninterest Expense

Noninterest expense was relatively flat at $42.0 million in the second quarter of 2013 as compared to $41.8 million in the second quarter of 2012.  On April 1, 2013, First Commonwealth redeemed $32.5 million of fixed-rate trust preferred debt, incurring a $1.6 million charge for early extinguishment of debt, which was partially offset by a $0.9 million, or 4%, decrease in salaries and employee benefits expense.

For the six months ended June 30, 2013, as compared to the same period last year, noninterest expense decreased $5.1 million, or 6%.  The decline was primarily attributable to $3.3 million less in OREO write-downs, a $1.4 million reduction in collection and repossession costs, a $0.8 million decrease in salaries and employee benefits and a $0.4 million reduction in FDIC insurance. These decreases were partially offset by the aforementioned charge related to the trust preferred early redemption and a $0.8 million contingency accrual for client tax reporting.

Full-time equivalent staff was 1,396 and 1,432 for the periods ended June 30, 2013 and 2012, respectively. The efficiency ratio, calculated as total noninterest expense as a percentage of total revenue (total revenue consists of net interest income, on a fully taxable equivalent basis, plus total noninterest income, excluding net impairment losses and net securities gains), was 68% for the six months ended June 30, 2013 and 2012. 

Dividend/Buybacks

First Commonwealth Financial Corporation declared a common stock quarterly dividend of $0.06 per share which is payable on August 16, 2013 to shareholders of record as of August 5, 2013. This dividend represents a 3% projected annual yield utilizing the July 23, 2013 closing market price of $8.09.

On January 29, 2013, First Commonwealth's Board of Directors authorized a $25.0 million common stock repurchase program in addition to the $50.0 million common stock repurchase program announced on June 19, 2012. Under these programs, management is authorized to repurchase shares through Rule 10b5-1 plans, open market purchases, privately negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934. Depending on market conditions and other factors, repurchases may be made at any time or from time to time, without prior notice. First Commonwealth may suspend or discontinue the programs at any time. As of June 30, 2013, First Commonwealth has purchased 8,921,093 shares at an average price of $6.80 per share under these programs.

First Commonwealth's Board of Directors also authorized the redemption of approximately $32.5 million in issued and outstanding 9.50% mandatorily redeemable capital securities issued by First Commonwealth Capital Trust I. First Commonwealth completed the redemption of these securities on April 1, 2013.

First Commonwealth's capital ratios for leverage, Total and Tier I were 9.9%, 13.3% and 12.1%, respectively on June 30, 2013.

Conference Call

First Commonwealth will host a quarterly conference call to discuss its financial results for the second quarter of 2013 on Wednesday, July 24, 2013 at 2:00 PM (ET). The call can be accessed by dialing (toll free) 1-888-317-6016 or through the company web page, http://www.fcbanking.com via the "Investor Relations" link. A replay of the call will be available approximately one hour following the conclusion of the conference. A link to the call replay will be accessible at this web page for 30 days.

About First Commonwealth Financial Corporation

First Commonwealth is a $6.2 billion financial holding company headquartered in Indiana, Pennsylvania.  It operates 110 retail branch offices in 15 counties in western and central Pennsylvania through First Commonwealth Bank, a Pennsylvania chartered bank and trust company.  Financial services and insurance products are also provided through First Commonwealth Insurance Agency and First Commonwealth Financial Advisors, Inc.

Forward-Looking Statements

This release contains forward-looking statements about First Commonwealth's future plans, strategies and financial performance.  These statements can be identified by the fact that they do not relate strictly to historical or current facts and often include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate" or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could" or "may."  Such statements are based on assumptions and involve risks and uncertainties, many of which are beyond our control and may cause actual results, performance or achievements to differ materially from the results, performance or achievements contemplated by the forward-looking statements.  These risks and uncertainties include, among other things, the following: continued deterioration in general business and economic conditions; changes in interest rates; deterioration in the credit quality of our loan portfolios or in the value of the collateral securing those loans; deterioration in the value of securities held in our investment securities portfolio; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Law and other legal and regulatory changes; increased competition from both banks and non-banks; changes in customer behavior and preferences; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; management's ability to effectively manage credit risk, market risk, operational risk, legal risk, and regulatory and compliance risk; and other risks and uncertainties described in our reports filed with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K.  Forward-looking statements speak only as of the date on which they are made. First Commonwealth undertakes no obligation to update any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

 




FIRST COMMONWEALTH FINANCIAL CORPORATION

CONSOLIDATED FINANCIAL DATA



Unaudited









(dollars in thousands, except per share data)










For the Three Months Ended


For the Six Months Ended


June 30,


March 31,


June 30,


June 30,


June 30,


2013


2013


2012


2013


2012

SUMMARY RESULTS OF OPERATIONS










Net interest income (FTE)(1)

$

46,728



$

46,447



$

48,008



$

93,174



$

97,395


Provision for credit losses

10,800



4,497



4,297



15,297



8,084


Noninterest income

14,931



14,885



16,096



29,816



33,476


Noninterest expense

41,998



41,454



41,848



83,452



88,600


Net income

5,816



10,553



12,321



16,369



23,372












Earnings per common share (diluted)

$

0.06



$

0.11



$

0.12



$

0.17



$

0.22












KEY FINANCIAL RATIOS










Return on average assets

0.38

%


0.71

%


0.83

%


0.54

%


0.79

%

Return on average shareholders' equity

3.16

%


5.73

%


6.41

%


4.45

%


6.11

%

Efficiency ratio(2)

68.12

%


67.59

%


65.28

%


67.86

%


67.70

%

Net interest margin (FTE)(1)

3.35

%


3.45

%


3.61

%


3.40

%


3.68

%











Book value per common share

$

7.37



$

7.53



$

7.38






Tangible book value per common share(4)

5.69



5.90



5.82






Market value per common share

7.37



7.46



6.73






Cash dividends declared per common share

0.06



0.05



0.05



$

0.11



$

0.08












ASSET QUALITY RATIOS










Allowance for credit losses as a percent of










   end-of-period loans

1.36

%


1.48

%


1.48

%





Allowance for credit losses as a percent of










   nonperforming loans

78.60

%


79.54

%


72.61

%





Nonperforming loans as a percent of










    end-of-period loans

1.73

%


1.86

%


2.04

%





Nonperforming assets as a percent of total assets

1.45

%


1.47

%


1.76

%





Net charge-offs as a percent of average loans










   (annualized)

1.47

%


0.90

%


0.33

%















CAPITAL RATIOS










Shareholders' equity as a percent of total assets

11.55

%


12.26

%


12.99

%





Tangible common equity as a percent of










   tangible assets(3)

9.16

%


9.87

%


10.54

%





Leverage Ratio

9.89

%


11.15

%


11.76

%





Risk Based Capital - Tier I

12.05

%


13.27

%


13.91

%





Risk Based Capital - Total

13.27

%


14.52

%


15.16

%





FIRST COMMONWEALTH FINANCIAL CORPORATION





CONSOLIDATED FINANCIAL DATA







Unaudited







(dollars in thousands, except per share data)








For the Three Months Ended


For the Six Months Ended


June 30,

March 31,

June 30,


June 30,

June 30,


2013

2013

2012


2013

2012

INCOME STATEMENT







Interest income

$

50,981


$

51,761


$

54,712



$

102,742


$

111,328

Interest expense

5,283


6,343


7,794



11,626


16,240

Net Interest Income

45,698


45,418


46,918



91,116


95,088

   Taxable equivalent adjustment(1)

1,030


1,029


1,090



2,058


2,307

Net Interest Income  (FTE)

46,728


46,447


48,008



93,174


97,395

Provision for credit losses

10,800


4,497


4,297



15,297


8,084

Net Interest Income after Provision for Credit Losses (FTE)

35,928


41,950


43,711



77,877


89,311








Changes in fair value on impaired securities

2,841


1,864


(1,323)



4,705


175

   Non-credit related (gains) losses on securities not







      expected to be sold (recognized in other







      comprehensive income)

(2,841)


(1,864)


1,323



(4,705)


(175)

Net Impairment Losses






Net securities gains

4


4




8


Trust income

1,608


1,663


1,607



3,271


3,149

Service charges on deposit accounts

3,815


3,401


3,737



7,216


7,239

Insurance and retail brokerage commissions

1,384


1,417


1,670



2,801


3,094

Income from bank owned life insurance

1,432


1,428


1,459



2,860


2,904

Gain on sale of assets

425


275


1,444



700


3,559

Card related interchange income

3,490


3,188


3,285



6,678


6,399

Other income

2,773


3,509


2,894



6,282


7,132

Total Noninterest Income

14,931


14,885


16,096



29,816


33,476








Salaries and employee benefits

21,497


21,793


22,363



43,290


44,121

Net occupancy expense

3,221


3,635


3,303



6,856


6,707

Furniture and equipment expense

3,297


3,272


3,024



6,569


6,208

Data processing expense

1,503


1,516


1,796



3,019


3,359

Pennsylvania shares tax expense

1,517


1,190


1,510



2,707


2,693

Intangible amortization

297


358


371



655


742

Collection and repossession expense

851


1,151


670



2,002


3,369

Other professional fees and services

948


969


940



1,917


2,139

FDIC insurance

1,084


1,050


1,262



2,134


2,499

Loss on early redemption of subordinated debt

1,629





1,629


Other operating expenses

6,154


6,520


6,609



12,674


16,763

Total Noninterest Expense

41,998


41,454


41,848



83,452


88,600








Income before Income Taxes

8,861


15,381


17,959



24,241


34,187

   Taxable equivalent adjustment(1)

1,030


1,029


1,090



2,058


2,307

Income tax provision

2,015


3,799


4,548



5,814


8,508

Net Income

$

5,816


$

10,553


$

12,321



$

16,369


$

23,372








Shares Outstanding at End of Period

96,442,161


99,298,120


104,728,846



96,442,161


104,728,846

Average Shares Outstanding Assuming Dilution

97,577,010


99,305,414


104,901,239



98,429,223


104,855,543

FIRST COMMONWEALTH FINANCIAL CORPORATION

CONSOLIDATED FINANCIAL DATA






Unaudited






(dollars in thousands)



















June 30,


March 31,


June 30,


2013


2013


2012

BALANCE SHEET (Period End)






Assets








Cash and due from banks

$

77,485



$

53,991



$

82,659

Interest-bearing bank deposits

4,497



1,780



3,839

Securities

1,340,600



1,325,560



1,195,118







Loans

4,229,752



4,218,810



4,159,531

Allowance for credit losses

(57,452)



(62,262)



(61,676)

Net loans

4,172,300



4,156,548



4,097,855







Goodwill and other intangibles

161,677



161,973



163,057

Other assets

396,457



399,187



404,288

Total Assets

$

6,153,016



$

6,099,039



$

5,946,816







Liabilities and Shareholders' Equity






Noninterest-bearing demand deposits

$

900,940



$

883,307



$

823,880







Interest-bearing demand deposits

101,505



90,276



98,937

Savings deposits

2,535,592



2,510,615



2,415,860

Time deposits

1,195,010



1,227,380



1,123,285

Total interest-bearing deposits

3,832,107



3,828,271



3,638,082







Total deposits

4,733,047



4,711,578



4,461,962







Short-term borrowings

441,848



308,100



474,264

Long-term borrowings

216,782



280,068



181,120

Total borrowings

658,630



588,168



655,384







Other liabilities

50,664



51,565



56,980

Shareholders' equity

710,675



747,728



772,490

Total Liabilities and Shareholders' Equity

$

6,153,016



$

6,099,039



$

5,946,816











 

FIRST COMMONWEALTH FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL DATA

Unaudited

(dollars in thousands)






For the Three Months Ended



June 30,

Yield/

March 31,

Yield/

June 30,

Yield/


2013

Rate

2013

Rate

2012

Rate

NET INTEREST MARGIN (Quarterly Averages)














Assets







   Loans (FTE)(1)

$

4,262,773


4.20

%

$

4,222,606


4.38

%

$

4,144,470


4.61

%

   Securities and interest bearing bank deposits (FTE)(1)

1,330,752


2.22

%

1,238,020


2.34

%

1,210,889


2.76

%

       Total Interest-Earning Assets (FTE)(1)

5,593,525


3.73

%

5,460,626


3.92

%

5,355,359


4.19

%

Noninterest-earning assets

577,818



569,277



589,888



Total Assets

$

6,171,343



$

6,029,903



$

5,945,247










Liabilities and Shareholders' Equity







Interest-bearing demand and savings deposits

$

2,630,512


0.13

%

$

2,606,695


0.15

%

$

2,553,412


0.17

%

Time deposits

1,216,403


1.05

%

1,141,576


1.14

%

1,165,009


1.58

%

Short-term borrowings

445,249


0.26

%

355,912


0.25

%

422,361


0.27

%

Long-term borrowings

221,310


1.79

%

280,152


2.80

%

183,890


4.09

%

Total Interest-Bearing Liabilities

4,513,474


0.47

%

4,384,335


0.59

%

4,324,672


0.72

%

Noninterest-bearing deposits

873,827



849,007



796,555



Other liabilities

46,847



49,295



50,724



Shareholders' equity

737,195



747,266



773,296



Total Noninterest-Bearing Funding Sources

1,657,869



1,645,568



1,620,575



Total Liabilities and Shareholders' Equity

$

6,171,343



$

6,029,903



$

5,945,247

















Net Interest Margin (FTE) (annualized)(1)


3.35

%


3.45

%


3.61

%

 


FIRST COMMONWEALTH FINANCIAL CORPORATION

CONSOLIDATED FINANCIAL DATA

Unaudited

(dollars in thousands)




For the Six Months Ended


June 30,

Yield/

June 30,

Yield/


2013

Rate

2012

Rate

NET INTEREST MARGIN (Year-to-Date Averages)










Assets





   Loans (FTE)(1)

$

4,242,800


4.29

%

$

4,129,977


4.71

%

   Securities and interest bearing bank deposits (FTE)(1)

1,284,643


2.28

%

1,196,948


2.84

%

       Total Interest-Earning Assets (FTE)(1)

5,527,443


3.82

%

5,326,925


4.29

%

Noninterest-earning assets

573,571



596,375



Total Assets

$

6,101,014



$

5,923,300








Liabilities and Shareholders' Equity





Interest-bearing demand and savings deposits

$

2,618,669


0.14

%

$

2,564,836


0.19

%

Time deposits

1,179,196


1.09

%

1,184,338


1.60

%

Short-term borrowings

400,827


0.26

%

378,407


0.27

%

Long-term borrowings

250,569


2.35

%

195,614


3.95

%

Total Interest-Bearing Liabilities

4,449,261


0.53

%

4,323,195


0.76

%

Noninterest-bearing deposits

861,486



780,611



Other liabilities

48,064



50,519



Shareholders' equity

742,203



768,975



Total Noninterest-Bearing Funding Sources

1,651,753



1,600,105



Total Liabilities and Shareholders' Equity

$

6,101,014



$

5,923,300













Net Interest Margin (FTE) (annualized)(1)


3.40

%


3.68

%











 



FIRST COMMONWEALTH FINANCIAL CORPORATION





CONSOLIDATED FINANCIAL DATA







Unaudited







(dollars in thousands)















June 30,

March 31,

June 30,





2013

2013

2012




ASSET QUALITY DETAIL







Nonperforming Loans:







Loans on nonaccrual basis

$

41,767


$

31,576


$

33,457





Troubled debt restructured loans on nonaccrual basis

17,519


32,565


45,235





Troubled debt restructured loans on accrual basis

13,811


14,140


6,251





Total Nonperforming Loans

$

73,097


$

78,281


$

84,943





Other real estate owned ("OREO")

15,603


10,933


19,140





Repossessions ("Repo")

573


742


663





Total Nonperforming Assets

$

89,273


$

89,956


$

104,746





Loans past due in excess of 90 days and still accruing

$

2,648


$

3,927


$

10,587





Criticized loans

223,594


254,866


272,517





Nonperforming assets as a percentage of total loans,







   plus OREO and Repos

2.10

%

2.13

%

2.51

%




Allowance for credit losses

$

57,452


$

62,262


$

61,676




















For the Three Months Ended


For the Six Months Ended


June 30,

March 31,

June 30,


June 30,

June 30,


2013

2013

2012


2013

2012

Net Charge-offs (Recoveries):







Commercial, financial, agricultural and other

$

13,547


$

410


$

1,717



$

13,957


$

3,393


Real estate construction

624


72


114



696


248


Commercial real estate

683


8,447


278



9,130


355


Residential real estate

232


(401)


593



(169)


2,172


Loans to individuals

524


894


651



1,418


1,474


Net Charge-offs

$

15,610


$

9,422


$

3,353



$

25,032


$

7,642









Net charge-offs as a percentage of average loans







outstanding (annualized)

1.47

%

0.90

%

0.33

%


1.19

%

0.37

%

Provision for credit losses as a percentage of net







   charge-offs

69.19

%

47.73

%

128.15

%


61.11

%

105.78

%

Provision for credit losses

$

10,800


$

4,497


$

4,297



$

15,297


$

8,084
















 

FIRST COMMONWEALTH FINANCIAL CORPORATION

CONSOLIDATED FINANCIAL DATA

Unaudited

(dollars in thousands, except per share data)







RECONCILIATION OF NON-GAAP MEASURES









(1) Net interest income has been computed on a fully taxable equivalent basis ("FTE") using the 35% federal income tax statutory rate.

(2) Efficiency ratio is "total noninterest expense" as a percentage of total revenue. Total revenue consists of "net interest income, on a fully taxable equivalent basis," plus "total noninterest income," excluding "net impairment losses" and "net securities gains."



June 30,


March 31,


June 30,


2013


2013


2012







Tangible Equity:






Total shareholders' equity

$

710,675



$

747,728



$

772,490


Less: intangible assets

161,677



161,973



163,057


Tangible Equity

548,998



585,755



609,433


Less: preferred stock






Tangible Common Equity

$

548,998



$

585,755



$

609,433








Tangible Assets:






Total assets

$

6,153,016



$

6,099,039



$

5,946,816


Less: intangible assets

161,677



161,973



163,057


Tangible Assets

$

5,991,339



$

5,937,066



$

5,783,759








(3)Tangible Common Equity as a percentage of Tangible Assets






9.16

%


9.87

%


10.54

%







Shares Outstanding at End of Period

96,442,161



99,298,120



104,728,846


(4)Tangible Book Value Per Common Share

$

5.69



$

5.90



$

5.82








Note: Management believes that it is a standard practice in the banking industry to present these non-gaap measures.  These measures provide useful information to management and investors by allowing them to make peer comparisons.

 

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