First Commonwealth Announces Fourth Quarter and Full-Year 2011 Financial Results

INDIANA, Pa., Jan. 25, 2012 /PRNewswire/ -- First Commonwealth Financial Corporation (NYSE: FCF) today reported a net loss of $5.7 million, or $0.05 per share, for the fourth quarter ended December 31, 2011, as compared to net income of $11.9 million, or $0.11 diluted earnings per share, in the fourth quarter of 2010. The decrease in net income was primarily the result of a higher provision for credit losses and a collateral valuation charge for an Other Real Estate Owned (OREO) property. For the year ended December 31, 2011, net income was $15.3 million, or $0.15 diluted earnings per share, compared to net income of $23.0 million, or $0.25 diluted earnings per share, for the year 2010. The decrease in year over year net income was primarily the result of lower net interest income due to balance sheet restructuring strategies and depressed loan demand in 2011.

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T. Michael Price, President and Chief Executive Officer, stated, "We took aggressive steps in the fourth quarter of 2011 to address troubled loans that are intended to move us beyond the credit issues that have weighed on our recent earnings performance. The decrease we experienced this quarter in nonperforming loans, combined with ongoing declines in our criticized assets, sends a clear message that First Commonwealth is determined to move forward and is focused on creating superior value for our investors."

Net Interest Income and Net Interest Margin

Fourth quarter 2011 net interest income, on a fully taxable equivalent basis, decreased $2.8 million, or 5%, to $48.9 million as compared to the fourth quarter of 2010. The decrease was the result of a $174.4 million decline in average interest-earning assets between the periods, combined with an eight basis point drop in the net interest margin. Net interest margin was 3.78%, 3.81% and 3.86% for the three-month periods ended December 31, 2011, September 30, 2011 and December 31, 2010, respectively. For the year ended December 31, 2011 net interest income, on a fully taxable equivalent basis, decreased $20.6 million, or 10%. The decrease was primarily due to a $427.1 million decline in average interest-earning assets and a decrease of eight basis points in the net interest margin. The net interest margin for the years ended December 31, 2011 and 2010 was 3.80% and 3.88%, respectively.

Significant changes to First Commonwealth's balance sheet from December 31, 2010 to December 31, 2011 included:  

• A decrease of $161.0 million, or 4%, in loans, primarily as the result of more disciplined underwriting guidelines concerning geography and size for commercial loans, the managing down of large credit relationships over $15 million and generally weak borrower demand.
• Continued improvement in the mix of deposits, as a $169.2 million, or 5%, growth in lower costing transaction and savings deposits partially offset a $282.4 million decrease in time deposits.
• A reduction of $47.4 million in exposure to municipal securities. At year-end this portfolio was valued at $0.5 million.

"As we continue to navigate the volatility of general economic forces, I am particularly encouraged by the $83.3 million in loan growth generated over the fourth quarter," said Mr. Price.  "The discipline of our calling efforts and the competitiveness of our lending solutions resulted in palpable growth in commercial, home equity and installment loans.  This loan growth strategy has effectively complemented our ongoing efforts to win new transactional and corporate cash management accounts."

Credit Quality

The provision for credit losses was $25.9 million and $55.8 million for the fourth quarter and year ended December 31, 2011, respectively, as compared to $8.0 million and $61.6 million in the prior year periods. The fourth quarter 2011 provision for credit losses included $12.4 million for revised collateral valuations on nine impaired commercial loan relationships, primarily secured by commercial real estate. Three of these loan relationships, totaling $22.9 million incurred $9.5 million in charge-offs and the remaining $13.4 million fair market value was transferred to Held-for-Sale classification.

At December 31, 2011, nonperforming loans were $112.2 million, a decrease of $49.7 million from September 30, 2011. The significant loans that were placed into nonperforming status in the fourth quarter of 2011 included $4.7 million for two Pennsylvania commercial relationships. That increase was offset by $34.0 million in charge-offs on 12 commercial credits, $6.8 million in transfers to OREO and $13.1 million that were sold, paid off or transferred to performing status. Nonperforming loans as a percentage of total loans were 2.76%, 4.07% and 2.79% for the periods ended December 31, 2011, September 30, 2011 and December 31, 2010, respectively.

During the fourth quarter of 2011, net charge-offs were $36.8 million compared to $22.4 million in the fourth quarter of 2010. The most significant loan charge-offs for the fourth quarter of 2011 included $34.0 million on the aforementioned nonperforming loans. For the year ended December 31, 2011, net charge-offs were $65.8 million, or 1.62% of average loans on an annualized basis, compared to $72.0 million, or 1.61% of average loans on an annualized basis for the year 2010. The allowance for credit losses as a percentage of total loans outstanding was 1.51%, 1.81% and 1.69% for December 31, 2011, September 30, 2011 and December 31, 2010, respectively.

OREO acquired through foreclosure was $30.0 million at December 31, 2011 which represented a decrease of $3.2 million from September 30, 2011. During the fourth quarter of 2011, $6.8 million on three commercial loans were transferred to OREO from nonperforming status as we move toward resolving these troubled credits. Offsetting this increase was a $4.2 million write-down associated with one OREO property that currently has a remaining book value of $2.4 million and $5.6 million from the sale of three properties.

Noninterest Income

Noninterest income, excluding net security gains (losses), increased $1.2 million, or 8%, in the fourth quarter of 2011 compared to the same period last year. This increase is primarily the result of $1.6 million in gains from the sale of two OREO properties, $1.0 million in rental revenue from an OREO property and $0.3 million in debit card related interchange income. Offsetting these increases is $2.0 million in charges for adverse mark-to-market credit adjustments on commercial loan interest rate swaps.

There were no recognized net security gains or other-than-temporary impairment charges for the fourth quarter of 2011 and were negligible in the fourth quarter of 2010. First Commonwealth did not incur any other-than-temporary impairment charges for the year 2011. Net security gains for the year 2011 were $2.2 million compared to net security losses of $6.8 million for the year 2010.

For the year ended December 31, 2011, noninterest income, excluding net security gains, decreased $0.5 million, or 1%, when compared to the year 2010. Significant changes to noninterest income for the twelve-month period include increases of $3.3 million in gains on the sale of assets, $2.5 million of rental revenue from an OREO property, $1.5 million in card related interchange income due to growth in demand deposit accounts, increased usage of debit cards and larger dollar transactions, and $0.6 million in wealth management fees. The $3.3 million gain on the sale of assets was primarily the result of the aforementioned $1.6 million in gains from the sale of OREO properties, $1.0 million gain on the exiting of a private equity investment in the second quarter of 2011 and a $0.5 million gain on the sale of a nonaccrual loan in the third quarter of 2011. The $0.6 million increase in wealth management fees was primarily the result of increased trust revenue due to revised fee schedules. Offsetting these increases were a $2.2 million decrease in service charges on deposit accounts, primarily a result of new regulations and shifts in consumer behavior, and $6.8 million in charges for adverse mark-to-market credit adjustments on commercial loan interest rate swaps, primarily related to one troubled loan relationship.

Noninterest Expense

Noninterest expense increased $5.2 million, or 12%, in the fourth quarter of 2011 from the fourth quarter of 2010, primarily from the $4.2 million write-down to current fair value for an OREO property, $0.9 million of operating expenses from the OREO property that we are receiving rental revenue and increases of $0.2 million in collection and repossession expense. Also affecting fourth quarter 2011 noninterest expense comparisons are $0.6 million of executive severance costs, offset by $0.7 million of lower FDIC insurance premiums.

For the year ended December 31, 2011, as compared to last year, noninterest expense increased $5.6 million, or 3%. Increases include $6.7 million in write-downs to current fair values for OREO properties, $2.1 million in operating expenses from the OREO property that we are receiving rental revenue, $1.4 million in loan processing fees for new indirect car loans, $1.2 million in other professional fees and services and $1.1 million of loan collection and repossession expense. These increases were partially offset by decreases of $2.6 million in other operating expenses and $2.5 million in FDIC insurance. The decrease in other operating expenses was primarily due to $1.1 million of reduced reserve for unfunded construction loan commitments as that portfolio balance has declined significantly.

Full time equivalent staff was 1,442 and 1,565 for the periods ended December 31, 2011 and 2010, respectively. Salaries and employee benefits for the year ended December 31, 2011 decreased $1.4 million from the year 2010 due to the reduction of 123 full time equivalent staff, and was partially offset by normal annual merit increases of $1.1 million.

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 70% for the year ended December 31, 2011 as compared to 63% for 2010. The increase in the efficiency ratio was primarily the result of the decline in net interest income and higher credit collection costs.

Dividends and Capital

First Commonwealth Financial Corporation declared a common stock quarterly dividend of $0.03 per share on January 24, 2012 which is payable on February 17, 2012 to shareholders of record as of February 3, 2012. This dividend represents a 2% projected annual yield utilizing the January 24, 2012 closing market price of $5.84.

First Commonwealth's capital ratios for Leverage, Total and Tier I at December 31, 2011 were 11.91%, 14.85% and 13.60%, respectively.

Conference Call

First Commonwealth will host a quarterly conference call to discuss its financial results for the fourth quarter of 2011 on Wednesday, January 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 $5.8 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.  Global and domestic economies could fail to recover from the recent economic downturn or could experience another severe contraction, which could adversely affect our revenues, increase credit-related costs and reduce the values of our assets and liabilities. Global financial markets could experience a recurrence of significant turbulence, which could reduce the availability of funding to certain financial institutions and lead to a tightening of credit, a reduction of business activity, and increased market volatility. Continued stress in the commercial real estate markets, as well as a delay or failure of recovery in the residential real estate markets, could cause additional credit losses and deterioration in asset values. In addition, our business and financial performance is likely to be negatively impacted by effects of recently enacted and future legislation and regulation.  Our results could also be adversely affected by 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; legal and regulatory developments; 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; and management's ability to effectively manage credit risk, market risk, operational risk, compliance and legal risk, interest rate risk, and liquidity risk. 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.

SOURCE First Commonwealth Financial Corporation