First Commonwealth Announces First Quarter 2017 Earnings; Declares Quarterly Dividend

INDIANA, PA--(Marketwired - April 25, 2017) - First Commonwealth Financial Corporation (NYSE: FCF) today announced financial results for the first quarter of 2017.

Year-to-date 2017 Highlights

Franchise Growth

• First Commonwealth completed the acquisition of DCB Financial Corp. in Lewis Center, Ohio on April 3, 2017, a natural extension of the acquisition of Columbus, Ohio-based First Community Bank in 2015.

Profitability

• The net interest margin improved six basis points to 3.50% compared to the prior quarter.
• Total loans increased 2.6% on an annualized basis, driven by a 6.3% increase in commercial loans.
• The core efficiency ratio improved to 60.49% compared to the previous quarter, driven by top line revenue growth and well controlled operational expenses.

Net Income

• First quarter net income was $15.9 million, or $0.18 diluted earnings per share. Core net income (adjusted for acquisition expenses) was $16.3 million, or $0.18 diluted earnings per share.
  • Net interest income of $52.8 million increased by $0.3 million compared to the prior quarter, primarily as a result of the impact of higher interest rates on variable rate loans combined with a lower level of short-term borrowings following the acquisition of deposits associated with 13 former FirstMerit branches in December 2016.
  • Noninterest income of $16.3 million, excluding net securities gains, decreased by $1.5 million compared to the prior quarter, despite higher card-related interchange income, primarily due to the recognition in the prior quarter of a $1.3 million positive mark-to-market adjustment for the commercial loan interest rate swap derivatives.
  • Noninterest expense of $42.8 million decreased $2.9 million from the previous quarter, primarily due to $2.8 million of one-time acquisition expenses related to the acquisition of 13 branches in northern Ohio and higher incentive expense in the fourth quarter of 2016; and
  • Provision for credit losses totaled $3.2 million, an increase of $5.1 million as compared to the prior quarter, due to the recognition of $5.1 million of recoveries in the fourth quarter of 2016 on loans previously charged off.

"This was, yet again, another solid quarter for First Commonwealth and a strong start to the year," stated T. Michael Price, President and Chief Executive Officer. "Our quarterly performance was highlighted by a second consecutive quarter of net interest margin expansion and disciplined expense control. I am pleased with the progress of our recent expansion efforts in Ohio. Our acquisition of 13 branches in December 2016 has established a retail base in northeast Ohio, and we anticipate a seamless transition for Delaware County Bank customers in central Ohio as well." Price continued, "I am genuinely excited about the growth opportunities afforded by these new markets as we continue to deliver long-term value to all of our stakeholders."

Financial Results Summary

For the three months ended March 31, 2017, net income was $15.9 million, or $0.18 diluted earnings per share, compared to net income of $17.9 million, or $0.20 diluted earnings per share, in the fourth quarter of 2016 and net income of $12.5 million, or $0.14 diluted earnings per share, in the first quarter of 2016. The decrease in net income compared to the fourth quarter of 2016 was driven by a $5.1 million increase in the provision for credit losses and a decrease in noninterest income (excluding net securities gains) of $1.5 million, offset partially by a decrease of $2.9 million in noninterest expense. The increase in provision expense is primarily the result of recoveries recognized in the prior quarter for loans previously charged off, while the decrease in noninterest expense is primarily related to $2.8 million, or $0.02 diluted earnings per share, of one-time acquisition expenses related to the northern Ohio branch acquisition in the fourth quarter of 2016. The increase in net income compared to the first quarter of 2016 was driven by a $3.3 million decrease in the provision for credit losses, an increase of $3.1 million in net interest income and an increase in noninterest income (excluding net securities gains) of $2.6 million, offset by an increase of $4.6 million in noninterest expense, which is due in part to increased operating expenses associated with the aforementioned branch acquisition in the fourth quarter of 2016.

For the three months ended March 31, 2017, return on average assets and return on average equity were 0.96% and 8.51%, respectively, as compared to 0.76% and 6.87% in the same period of 2016. Return on average tangible common equity was 11.80% in the first quarter of 2017 and 8.95% for the same period of 2016.

Net Interest Income and Net Interest Margin

First quarter 2017 net interest income, on a fully taxable-equivalent basis, increased by $0.3 million to $52.8 million compared to the fourth quarter of 2016. The increase from the prior quarter is primarily due to improved yields on variable and adjustable loan portfolios following the Federal Reserve's decision to increase short-term rates in December of 2016 and March of 2017, along with the ability to pay down higher cost short-term borrowings following the branch acquisition. The yield on interest-earning assets increased by six basis points and funding costs remained constant during the quarter.

As compared to the first quarter of 2016, net interest income, on a fully taxable-equivalent basis, increased by $3.1 million, driven largely by favorable replacement rates on commercial and consumer loan yields and a $52.3 million increase in average interest-earning assets. The increase in average interest-earning assets includes a $171.5 million increase in total average loans, of which $105.6 million was acquired in conjunction with the aforementioned branch acquisition, offset by a decrease of $119.2 million in the securities portfolio over the period. The net interest margin of 3.50% in the first quarter of 2017 expanded 21 basis points compared to the first quarter of 2016. The increase is attributable to a 19 basis point increase in the yield on interest-earning assets driven by favorable replacement yields and an improved earning asset mix, and a one basis point decline in funding costs due to an increase of $134.2 million in average noninterest-bearing deposits, which includes $101.2 million in average noninterest-bearing deposits acquired in conjunction with the aforementioned branch acquisition.

Total deposits grew by $22.3 million in the first quarter of 2017 compared to the previous quarter, and increased by $668.1 million from the prior year quarter, which includes the addition of $605.3 million in deposits acquired at the closing of the northern Ohio branch acquisition.

Compared to the prior quarter, average noninterest-bearing demand deposits increased $35.1 million in the first quarter of 2017. Noninterest-bearing demand deposits currently comprise 25.6% of total deposits. Average interest-bearing demand and savings deposits increased $331.9 million from the prior quarter, which includes the addition of $297.0 million of average interest-bearing demand and savings deposits related to the branch acquisition. Average time deposits decreased by $5.1 million compared to the prior quarter.

Average deposits increased $658.4 million from the year-ago quarter, including the addition of $581.8 million in average deposits from the aforementioned branch acquisition. The year-over-year comparison of average deposit balances is driven by increases of $546.3 million in average interest-bearing demand and savings deposits, which includes the addition of $440.9 million of average interest-bearing demand and savings deposits from the aforementioned branch acquisition, and $134.2 million in average noninterest-bearing deposits, which includes $101.2 million of average noninterest-bearing deposits from the branch acquisition. This growth was partially offset by a decrease of $22.2 million in average time deposits.

Average short-term borrowings decreased $279.6 million from the prior quarter and $572.0 million over the year-ago period as the acquired branch deposits were utilized to pay down higher cost short-term borrowings.

Credit Quality

The provision for credit losses totaled $3.2 million for the quarter ended March 31, 2017, an increase of $5.1 million as compared to the prior quarter and a decrease of $3.3 million from the same quarter last year. The increase from the prior quarter is primarily due to the recognition in the previous quarter of $5.1 million of recoveries on loans previously charged-off.

At March 31, 2017, nonperforming loans were $49.9 million, an increase of $8.1 million from December 31, 2016 and a decrease of $11.9 million from March 31, 2016. The increase from the fourth quarter of 2016 was related to two commercial manufacturing credits that were placed into nonperforming status in the first quarter of 2017. Nonperforming loans as a percentage of total loans were 1.01%, 0.86% and 1.29% for the periods ended March 31, 2017, December 31, 2016 and March 31, 2016, respectively.

During the first quarter of 2017, net charge-offs were $4.7 million, compared to $2.7 million in the prior quarter and $2.1 million in the first quarter of 2016. Net charge-offs in the first quarter of 2017 included charge-offs for the two aforementioned commercial manufacturing credits totaling $3.4 million, which were classified as nonaccrual in the first quarter of 2017.

The allowance for credit losses was $48.7 million at March 31, 2017. For the originated portfolio, the allowance for credit losses as a percentage of total loans outstanding was 1.01%, 1.05% and 1.15% for March 31, 2017, December 31, 2016 and March 31, 2016, respectively. The allowance for credit losses as a percentage of total loans outstanding was 0.99%, 1.03% and 1.15% for March 31, 2017, December 31, 2016 and March 31, 2016, respectively, with the movement due to additional loan balances from acquisitions. For the originated portfolio, general reserves as a percentage of non-impaired loans were 0.96%, 0.99% and 0.88% for March 31, 2017, December 31, 2016 and March 31, 2016, respectively. General reserves as a percentage of non-impaired loans were 0.94%, 0.97% and 0.88% for March 31, 2017, December 31, 2016 and March 31, 2016, respectively. The reserve coverage ratio (the ratio of total reserves to nonperforming loans) was 105.2%, 120.0% and 89.3% for March 31, 2017, December 31, 2016 and March 31, 2016, respectively.

Other real estate owned (OREO) acquired through foreclosure was $6.9 million at March 31, 2017, $6.8 million at December 31, 2016 and $8.6 million at March 31, 2016. There were no significant additions to OREO in the first quarter of 2017.

Noninterest Income

Noninterest income (excluding net securities gains) decreased $1.5 million in the first quarter of 2017 as compared to the prior quarter. The decrease is primarily the result of the recognition of a $1.3 million positive mark-to-market adjustment for the commercial loan interest rate swap derivatives in the prior quarter, as well as $0.4 million less in customer swap income. Noninterest income benefited from an increase of $0.3 million in card-related interchange income as compared with the prior quarter, offset by a $0.3 million decline in gain on sale of mortgages, as a relatively larger proportion of mortgage originations were retained in the bank's loan portfolio.

Noninterest income (excluding net securities gains) increased $2.6 million compared to the same quarter last year. The increase in noninterest income (excluding net securities gains) is primarily related to a positive variance of $1.0 million for the mark-to-market adjustment on commercial loan interest rate swap derivatives, a $0.7 million increase in card-related interchange income, a $0.6 million increase in service charges on deposit accounts and a $0.3 million increase in gain on sale of mortgage loans, offset by a $0.5 million decrease in customer swap income.

Noninterest Expense

Noninterest expense decreased $2.9 million to $42.8 million in the first quarter of 2017 as compared to the prior quarter. The decrease is attributable to a $2.2 million decline in one-time acquisition expenses associated with the northern Ohio branch acquisition, a decrease in salaries and benefits of $1.4 million due to lower incentive and hospitalization costs, a decrease of $0.4 million related to the sale or write-down of foreclosed assets and a $0.3 million decline in the reserve for unfunded loan commitments (which is included in other operating expenses). Also impacting noninterest expense as compared to the prior quarter were increases of $0.5 million in occupancy expense, a $0.3 million increase in intangible amortization related to the branch acquisition and a $0.3 million increase in other operating expenses.

Noninterest expense increased $4.6 million in the first quarter of 2017 as compared to the first quarter of 2016, primarily attributable to an increase in salaries and benefits of $1.8 million as compared to the prior year due to the addition of acquired branch staff and normal merit increases. Also impacting noninterest expense as compared to the prior year was an increase of $0.3 million in occupancy and a $0.4 million increase in intangible amortization expense due to the branch acquisition, a $0.6 million increase in one-time acquisition expenses and a $0.8 million increase in other operating expenses, offset by a decrease of $0.2 million in FDIC insurance expense.

Full time equivalent staff was 1,271 at March 31, 2017 and 1,274 at December 31, 2016 and was 1,216 at March 31, 2016. The year-over-year increase is the result of the addition of employees from the acquired branches and the recent expansion of the mortgage and commercial banking businesses in Ohio.

The core efficiency ratio, which excludes securities gains and losses, amortization of intangible assets and other nonrecurring items, was 60.49% and 59.53% for the three months ending March 31, 2017 and 2016, respectively. The Consolidated Financial Highlights accompanying this news release include additional information regarding reconciliations of non-GAAP financial measures to reported amounts, including a reconciliation of the core efficiency ratio.

Dividends and Capital

First Commonwealth Financial Corporation declared a common stock quarterly dividend of $0.08 per share, which is payable on May 19, 2017 to shareholders of record as of May 5, 2017. This dividend represents a 2.4% projected annual yield utilizing the April 24, 2017 closing market price of $13.12.

First Commonwealth's capital ratios for Total, Tier I, Leverage and Common Equity Tier I at March 31, 2017 were 12.3%, 11.3%, 9.9% and 10.1%, respectively. First Commonwealth's current capital levels exceed the fully-phased in Basel III capital requirements issued by U.S. bank regulators.

Conference Call

First Commonwealth will host a quarterly conference call to discuss its financial results for the first quarter 2017 on Wednesday, April 26, 2017 at 2:00 PM (ET). The call can be accessed by dialing (toll free) 1-844-792-3645 or through the company's web page, http://www.fcbanking.com/InvestorRelations. A replay of the call will be available approximately one hour following the conclusion of the conference by dialing 1-877-344-7529 and entering the access code #10104484. A link to the webcast replay will also be accessible on the company's web page for 30 days.

About First Commonwealth Financial Corporation

First Commonwealth Financial Corporation (NYSE: FCF), headquartered in Indiana, Pennsylvania, is a financial services company with 135 banking offices in 20 counties throughout western and central Pennsylvania and central and northeastern Ohio, as well as a Corporate Banking Center in northeast Ohio and mortgage offices in Stow and Dublin, Ohio. First Commonwealth provides a full range of commercial banking, consumer banking, mortgage, wealth management and insurance products and services through its subsidiaries First Commonwealth Bank and First Commonwealth Insurance Agency. For more information about First Commonwealth or to open an account today, please visit www.fcbanking.com.

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 First Commonwealth's control. Factors that could cause actual results, performance or achievements to differ from those discussed in the forward-looking statements include, but are not limited to: (1) local, regional, national and international economic conditions and the impact they may have on First Commonwealth and its customers; (2) volatility and disruption in national and international financial markets; (3) the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board; (4) inflation, interest rate, commodity price, securities market and monetary fluctuations; (5) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which First Commonwealth must comply; (6) the soundness of other financial institutions; (7) political instability; (8) impairment of First Commonwealth's goodwill or other intangible assets; (9) acts of God or of war or terrorism; (10) the timely development and acceptance of new products and services and perceived overall value of these products and services by users; (11) changes in consumer spending, borrowings and savings habits; (12) changes in the financial performance and/or condition of First Commonwealth's borrowers; (13) technological changes; (14) acquisitions and integration of acquired businesses; (15) First Commonwealth's ability to attract and retain qualified employees; (16) changes in the competitive environment in First Commonwealth's markets and among banking organizations and other financial service providers; (17) the ability to increase market share and control expenses; (18) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (19) the reliability of First Commonwealth's vendors, internal control systems or information systems; (20) the costs and effects of legal and regulatory developments, the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals; and (21) other risks and uncertainties described in the reports that First Commonwealth files with the Securities and Exchange Commission, including its 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.