First Commonwealth Announces Second Quarter 2012 Financial Results

Jul 25, 2012, 08:00 ET from First Commonwealth Financial Corporation

INDIANA, Pa., July 25, 2012 /PRNewswire/ -- First Commonwealth Financial Corporation (NYSE: FCF) today reported net income of $12.3 million, or $0.12 diluted earnings per share, for the second quarter ended June 30, 2012, as compared to net income of $7.4 million, or $0.07 diluted earnings per share, in the second quarter of 2011. The increase in net income was primarily the result of a lower provision for credit losses, a decrease in noninterest expense, offset by a decrease in noninterest income. For the six months ended June 30, 2012, net income was $23.4 million, or $0.22 diluted earnings per share, compared to net income of $12.7 million, or $0.12 diluted earnings per share, for the comparable period in 2011. The increase in net income was primarily the result of a lower provision for credit losses, an increase in noninterest income, offset by an increase in noninterest expense.

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T. Michael Price, President and Chief Executive Officer, stated, "One of our primary strategic focuses for 2012 is to clearly put legacy credit issues behind us. Our second quarter and year-to-date results evidence that progress and reflect the solid improvement in our credit quality metrics."

Net Interest Income and Net Interest Margin

Second quarter 2012 net interest income, on a fully taxable equivalent basis, decreased $0.3 million, or 1%, compared to the second quarter of 2011 to $48.0 million. The decrease was a result of a 15 basis point decline in the net interest margin. Net interest margin was 3.61%, 3.75% and 3.76% for the three-month periods ended June 30, 2012, March 31, 2012 and June 30, 2011, respectively. For the six months ended June 30, 2012 net interest income, on a fully taxable equivalent basis, decreased $0.3 million to $97.4 million. The decrease was primarily due to a decrease of 13 basis points in the net interest margin.  The year-to-date net interest income included $1.0 million of delinquent interest recognized in the first quarter of 2012 for one commercial loan which resulted in an increase of 4 basis points in net interest margin. The net interest margin for the six-months ended June 30, 2012 and 2011 was 3.68% and 3.81%, respectively. The current low interest rate environment is causing net interest margin compression. The negative effects of this interest rate environment were partially offset by a $259.9 million, or 5%, increase in interest-earning assets over the twelve-month period. 

Price noted, "Another area of strategic focus was loan growth. The quarter ending June 30, 2012 represented our third consecutive quarter of growth, with $102.5 million in loan growth year-to-date. Our lenders continue to do a commendable job in a difficult economic environment."

Credit Quality

The provision for credit losses was $4.3 million and $8.1 million for the three and six months ended June 30, 2012, respectively, as compared to $9.1 million and $22.9 million in the prior-year periods.

For the quarter ended June 30, 2012, nonperforming loans were $84.9 million, a decrease of $4.7 million from March 31, 2012 and $62.8 million from June 30, 2011.

During the second quarter of 2012, net charge-offs were $3.4 million compared to $10.7 million in the second quarter of 2011. For the six months ended June 30, 2012, net charge-offs were $7.6 million, or 0.37% of average loans on an annualized basis, compared to $19.0 million, or 0.93% of average loans on an annualized basis, for the same period in 2011. 

The allowance for credit losses as a percentage of total loans outstanding was 1.48%, 1.47% and 1.88% for June 30, 2012, March 31, 2012 and June 30, 2011, respectively.

Other Real Estate Owned ("OREO") acquired through foreclosure was $19.1 million at June 30, 2012. During the first half of 2012, three troubled credits classified as held for sale in the fourth quarter of 2011, totaling $13.4 million, were sold for $2.9 million in excess of carrying value.

Noninterest Income

Noninterest income, excluding net security gains, increased $0.6 million, or 4%, in the second quarter of 2012 compared to the same period last year. The increase is primarily a result of $1.0 million of commercial loan swap-related income and increased card-related interchange income of $0.2 million.  Negatively affecting year-to-year quarterly comparisons was a decrease of $0.5 million in letter of credit fees.  The swap related increase was related to higher credit losses during 2011 primarily attributable to one commercial credit relationship.

For the six months ended June 30, 2012, noninterest income, excluding net security gains, increased $4.3 million, or 15%, when compared to the same period of 2011, primarily attributable to the aforementioned gain on loans held for sale. Also contributing to the increase was $1.8 million of swap-related activities, $0.7 million of revenue from an OREO property that was sold in the first quarter of 2012 and $0.6 million in card-related income. Also affecting the year-over-year comparisons was a $0.6 million decrease in letter of credit fees and a $0.4 million decline in revenue from wealth management. The swap related increase was comprised of $0.5 million of increased fees and $1.3 million primarily due to an improved credit profile related to the aforementioned commercial credit relationship.

There were no net security gains for the three and six months ending June 30, 2012 compared to $1.6 million and $2.2 million for the same periods in 2011.  The 2011 gains were primarily the result of a $1.5 million realized gain from the sale of an equity security. First Commonwealth has not incurred any other-than-temporary impairment charges in the investment portfolio for the past six quarters.

Noninterest Expense

Noninterest expense decreased $3.9 million, or 8%, in the second quarter of 2012 from the second quarter of 2011.  The decrease is primarily related to a $4.1 million write-down to current fair value for an OREO property in the second quarter of 2011 and decreased collection costs of $1.1 million for troubled loans and OREO properties in the second quarter of 2012. The decreases were partially offset by a $0.8 million increase in salaries and benefits.  The increase in staff and benefits was primarily a result of increasing positions within the lending and other business development areas and expanded incentive programs to encourage new business production, which were partially offset by restructurings and refinements in our support and retail distribution areas.

For the six-months ended June 30, 2012, as compared to the same period last year, noninterest expense increased $1.5 million or 2%.  The increase was primarily attributable to an increase of $1.4 million in salaries and employee benefits due to the aforementioned organizational restructurings and normal merit increases.  Also affecting the year-over-year comparisons were decreases of $0.6 million in FDIC insurance and $0.5 million in occupancy expense.

Full-time equivalent staff was 1,432 and 1,512 for the periods ended June 30, 2012 and 2011, 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, 2012 as compared to 69% during the same period in 2011.  

"Improved efficiency is the focus of a number of our strategic initiatives this year," commented Price. "The cost of resolving troubled credits has certainly had a significant impact on our noninterest expense over the past two years.  And while the level of our noninterest expense continues to improve, many more efficiency opportunities remain.  Our entire organization is engaged in this effort, and we believe these process improvements are essential to exceeding our customers' expectations.  We find this particularly true as we navigate a new operating environment of increased cost of regulatory compliance.  Ultimately, efficiency is key to sustaining a competitive advantage."

Dividend/Buybacks

First Commonwealth Financial Corporation declared a common stock quarterly dividend of $0.05 per share on July 24, 2012 which is payable on August 17, 2012 to shareholders of record as of August 3, 2012. This dividend represents a 3% projected annual yield utilizing the June 30, 2012 closing market price of $6.73 and signifying a 67% increase from last year.

On June 19, 2012, First Commonwealth announced a $50 million common stock repurchase program effective until December 31, 2012. Through June 30, 2012, 469,700 shares were purchased at an average price of $6.45 per share.

First Commonwealth's capital ratios for leverage, Total and Tier I were 11.8%, 15.2% and 13.9%, respectively on June 30, 2012.

Conference Call

First Commonwealth will host a quarterly conference call to discuss its financial results for the second quarter of 2012 on Wednesday, July 25, 2012 at 2:00 PM (ET). The call can be accessed by dialing (toll free) 1-877-317-6789 or through our web page, http://www.fcbanking.com via our "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 Financial Corporation is a $5.9 billion financial holding company headquartered in Indiana, Pennsylvania.  It operates 112 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,

2012

2012

2011

2012

2011

SUMMARY RESULTS OF OPERATIONS

Net interest income (FTE)(1)

$48,008

$49,387

$48,294

$97,395

$97,693

Provision for credit losses

4,297

3,787

9,112

8,084

22,929

Noninterest income

16,096

17,380

17,064

33,476

31,392

Noninterest expense

41,848

46,752

45,700

88,600

87,129

Net income

12,321

11,051

7,419

23,372

12,665

Earnings per common share (diluted)

$0.12

$0.11

$0.07

$0.22

$0.12

KEY FINANCIAL RATIOS

Return on average assets

0.83%

0.75%

0.52%

0.79%

0.44%

Return on average shareholders' equity

6.41%

5.81%

3.92%

6.11%

3.37%

Efficiency ratio(2)

65.28%

70.02%

71.69%

67.70%

68.66%

Net interest margin (FTE)(1)

3.61%

3.75%

3.76%

3.68%

3.81%

Book value per common share

$7.38

$7.30

$7.26

Tangible book value per common share(4)

5.82

5.75

5.70

Market value per common share

6.73

6.12

5.74

Cash dividends declared per common share

0.05

0.03

0.03

$0.08

$0.06

ASSET QUALITY RATIOS

Allowance for credit losses as a percent of end-of-period loans(6)

1.48%

1.47%

1.88%

Allowance for credit losses as a percent of nonperforming loans(6)

72.61%

74.45%

51.18%

Nonperforming loans as a percent of end-of-period loans(5)

2.04%

2.17%

3.70%

Nonperforming assets as a percent of total assets(5)

1.75%

1.86%

3.24%

Net charge-offs as a percent of average loans (annualized)

0.33%

0.42%

1.06%

CAPITAL RATIOS

Shareholders' equity as a percent of total assets

12.99%

12.86%

13.39%

Tangible common equity as a percent of tangible assets(3)

10.54%

10.40%

10.81%

Leverage Ratio

11.76%

11.74%

11.95%

Risk Based Capital - Tier I

13.91%

13.52%

13.87%

Risk Based Capital - Total

15.16%

14.77%

15.12%

(6)Excludes held for sale loans.

FIRST COMMONWEALTH FINANCIAL CORPORATION

CONSOLIDATED FINANCIAL DATA 

Unaudited

(dollars in thousands, except share data)

For the Three Months Ended

For the Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2012

2012

2011

2012

2011

INCOME STATEMENT 

   Interest income

$54,712

$56,616

$57,989

$111,328

$117,458

   Interest expense

7,794

8,446

11,104

16,240

22,704

    Net Interest Income

46,918

48,170

46,885

95,088

94,754

Taxable equivalent adjustment(1)

1,090

1,217

1,409

2,307

2,939

    Net Interest Income  (FTE)

48,008

49,387

48,294

97,395

97,693

Provision for credit losses

4,297

3,787

9,112

8,084

22,929

    Net Interest Income after Provision for Credit Losses (FTE)

43,711

45,600

39,182

89,311

74,764

Changes in fair value on impaired securities

(1,323)

1,498

448

175

2,317

Non-credit related (gains) losses on securities not expected to

be sold (recognized in other comprehensive income)

1,323

(1,498)

(448)

(175)

(2,317)

Net Impairment Losses

0

0

0

0

0

Net securities gains

0

0

1,608

0

2,185

Trust income

1,607

1,542

1,764

3,149

3,482

Service charges on deposit accounts

3,737

3,502

3,748

7,239

7,174

Insurance and retail brokerage commissions 

1,670

1,424

1,616

3,094

3,178

Income from bank owned life insurance

1,459

1,445

1,390

2,904

2,747

Gain on sale of assets

1,444

2,115

1,251

3,559

1,482

Card related interchange income 

3,285

3,114

3,042

6,399

5,842

Other income

2,894

4,238

2,645

7,132

5,302

Total Noninterest Income

16,096

17,380

17,064

33,476

31,392

Salaries and employee benefits

22,363

21,758

21,546

44,121

42,674

Net occupancy expense

3,303

3,404

3,495

6,707

7,227

Furniture and equipment expense

3,024

3,184

3,135

6,208

6,315

Data processing expense

1,796

1,563

1,525

3,359

2,949

Pennsylvania shares tax expense

1,510

1,183

1,434

2,693

2,612

Intangible amortization

371

371

389

742

779

Collection and repossession expense

670

2,699

1,726

3,369

3,042

Other professional fees and services

940

1,199

1,099

2,139

2,224

FDIC insurance

1,262

1,237

1,248

2,499

3,083

Loss on sale or write-down of assets

500

3,289

4,214

3,789

4,515

Other operating expenses

6,109

6,865

5,889

12,974

11,709

Total Noninterest Expense

41,848

46,752

45,700

88,600

87,129

Income before Income Taxes

17,959

16,228

10,546

34,187

19,027

Taxable equivalent adjustment(1)

1,090

1,217

1,409

2,307

2,939

Income tax provision

4,548

3,960

1,718

8,508

3,423

Net Income

$12,321

$11,051

$7,419

$23,372

$12,665

Shares Outstanding at End of Period

104,728,846

105,050,018

104,906,994

104,728,846

104,906,994

Average Shares Outstanding Assuming Dilution 

104,901,239

104,816,442

104,686,072

104,855,543

104,653,604

FIRST COMMONWEALTH FINANCIAL CORPORATION

CONSOLIDATED FINANCIAL DATA

Unaudited

(dollars in thousands)

June 30,

March 31,

June 30,

2012

2012

2011

BALANCE SHEET (Period End)

Assets

Cash and due from banks

$82,659

$74,889

$78,187

Interest-bearing bank deposits

3,839

6,663

52,320

Securities

1,195,118

1,244,749

1,053,427

Loans held for sale

0

8,076

823

Loans

4,159,531

4,128,588

3,992,058

Allowance for credit losses

(61,676)

(60,732)

(75,166)

Net loans

4,097,855

4,067,856

3,916,892

Goodwill and other intangibles

163,057

163,428

164,553

Other assets

404,288

402,983

425,100

Total Assets

$5,946,816

$5,968,644

$5,691,302

Liabilities and Shareholders' Equity

Noninterest-bearing demand deposits

$823,880

$818,896

$730,049

Interest-bearing demand deposits

98,937

122,320

91,362

Savings deposits

2,415,860

2,469,736

2,375,349

Time deposits

1,123,285

1,222,879

1,339,388

Total interest-bearing deposits

3,638,082

3,814,935

3,806,099

Total deposits

4,461,962

4,633,831

4,536,148

Short-term borrowings

474,264

309,373

161,935

Long-term borrowings

181,120

206,768

179,102

Total borrowings

655,384

516,141

341,037

Other liabilities

56,980

51,314

52,041

Shareholders' equity

772,490

767,358

762,076

Total Liabilities and Shareholders' Equity

$5,946,816

$5,968,644

$5,691,302

For the Three Months Ended

For the Six Months Ended

June 30,

Yield/

March 31,

Yield/

June 30,

Yield/

June 30,

Yield/

June 30,

Yield/

2012

Rate

2012

Rate

2011

Rate

2012

Rate

2011

Rate

NET INTEREST MARGIN (Quarterly and Year-to-Date Averages)

Assets

Loans (FTE)(1)(5)

$4,144,470

4.61%

$4,115,483

4.81%

$4,059,259

5.02%

$4,129,977

4.71%

$4,114,862

5.05%

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

1,210,889

2.76%

1,183,007

2.92%

1,091,590

3.17%

1,196,948

2.84%

1,051,952

3.32%

Total Interest-Earning Assets (FTE)(1)

5,355,359

4.19%

5,298,490

4.39%

5,150,849

4.63%

5,326,925

4.29%

5,166,814

4.70%

Noninterest-earning assets

589,888

602,863

581,998

596,375

585,523

Total Assets

$5,945,247

$5,901,353

$5,732,847

$5,923,300

$5,752,337

Liabilities and Shareholders' Equity

Interest-bearing demand and savings deposits

$2,553,412

0.17%

$2,576,259

0.22%

$2,484,141

0.34%

$2,564,836

0.19%

$2,468,140

0.34%

Time deposits

1,165,009

1.58%

1,203,668

1.62%

1,391,168

2.02%

1,184,338

1.60%

1,431,108

2.03%

Short-term borrowings

422,361

0.27%

334,454

0.27%

157,922

0.45%

378,407

0.27%

165,141

0.44%

Long-term borrowings

183,890

4.09%

207,338

3.83%

179,675

4.09%

195,614

3.95%

182,393

4.10%

Total Interest-Bearing Liabilities

4,324,672

0.72%

4,321,719

0.79%

4,212,906

1.06%

4,323,195

0.76%

4,246,782

1.08%

Noninterest-bearing deposits

796,555

764,667

714,234

780,611

700,713

Other liabilities

50,724

50,312

46,036

50,519

47,304

Shareholders' equity

773,296

764,655

759,671

768,975

757,538

Total Noninterest-Bearing Funding Sources

1,620,575

1,579,634

1,519,941

1,600,105

1,505,555

Total Liabilities and Shareholders' Equity

$5,945,247

$5,901,353

$5,732,847

$5,923,300

$5,752,337

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

3.61%

3.75%

3.76%

3.68%

3.81%

(5) Includes held for sale loans.

 

FIRST COMMONWEALTH FINANCIAL CORPORATION

CONSOLIDATED FINANCIAL DATA

Unaudited

(dollars in thousands, except per share data)

June 30,

March 31,

June 30,

2012

2012

2011

ASSET QUALITY DETAIL

Nonperforming Loans:

Loans on nonaccrual basis

$33,457

$36,405

$89,974

Loans held for sale on nonaccrual basis

0

8,076

823

Troubled debt restructured loans on nonaccrual basis

45,235

41,690

22,693

Troubled debt restructured loans on accrual basis

6,251

3,482

34,208

Total Nonperforming Loans

$84,943

$89,653

$147,698

Other real estate owned ("OREO")

19,140

21,335

36,507

Total Nonperforming Assets

$104,083

$110,988

$184,205

Loans past due in excess of 90 days and still accruing

$10,587

$8,126

$12,960

Criticized loans

272,517

265,526

460,663

Nonperforming loans, plus OREO as a percentage 

of total loans, plus OREO (5)

2.49%

2.67%

4.57%

Allowance for credit losses

$61,676

$60,732

$75,166

For the Three Months Ended

For the Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2012

2012

2011

2012

2011

Net Charge-offs:

Commercial, financial, agricultural and other

$1,717

$1,676

$1,840

$3,393

$2,696

Real estate construction

114

134

3,049

248

8,048

Commercial real estate

278

77

4,721

355

5,411

Residential real estate

593

1,579

519

2,172

1,604

Loans to individuals

651

823

609

1,474

1,233

Net Charge-offs

$3,353

$4,289

$10,738

$7,642

$18,992

Net charge-offs as a percentage of average loans 

outstanding (annualized)

0.33%

0.42%

1.06%

0.37%

0.93%

Provision for credit losses as a percentage of net charge-offs

128.15%

88.30%

84.86%

105.78%

120.73%

Provision for credit losses

$4,297

$3,787

$9,112

$8,084

$22,929

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,

2012

2012

2011

Tangible Equity:

Total shareholders' equity

$772,490

$767,358

$762,076

Less: intangible assets

163,057

163,428

164,553

Tangible Equity

609,433

603,930

597,523

Less: preferred stock

0

0

0

Tangible Common Equity

$609,433

$603,930

$597,523

Tangible Assets:

Total assets

$5,946,816

$5,968,644

$5,691,302

Less: intangible assets

163,057

163,428

164,553

Tangible Assets

$5,783,759

$5,805,216

$5,526,749

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

10.54%

10.40%

10.81%

Shares Outstanding at End of Period

104,728,846

105,050,018

104,906,994

(4)Tangible Book Value Per Common Share

$5.82

$5.75

$5.70

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.

SOURCE First Commonwealth Financial Corporation



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