First Commonwealth Announces First Quarter 2016 Financial Results; Declares Quarterly Dividend

INDIANA, PA--(Marketwired - April 26, 2016) - First Commonwealth Financial Corporation (NYSE: FCF) today announced financial results for the first quarter of 2016.

First Quarter 2016 Highlights

Profitability

• Loans experienced solid growth from the prior quarter of 9.8% on an annualized basis;
• Deposits grew 10.1% from the prior quarter on an annualized basis;
• The net interest margin expanded three basis points from the prior quarter to 3.29%; and
• The efficiency ratio improved to 60.10% driven by lower operational expenses.

  Net Income

• First quarter net income was $12.5 million, or $0.14 diluted earnings per share. Net income was impacted by the following items:
  • Net interest income increased by $0.6 million as compared to the prior quarter, primarily as a result of strong commercial loan growth and expansion in the net interest margin, and is at the highest level since the fourth quarter of 2010;
  • Noninterest income benefited from $0.7 million in gains on the sale of mortgage loans and $0.4 million of swap income, as well as a 7.9% increase in service charges on deposit accounts and card-related interchange income over the prior year period; offset by a negative fair market value adjustment for commercial loan interest rate swaps of $1.0 million;
  • Noninterest expense of $38.1 million is at the lowest level since the fourth quarter of 2007; and
  • Provision for credit losses totaled $6.5 million, an increase of $0.4 million from the previous quarter, due primarily to a $6.0 million specific reserve for a steel and aluminum servicing company placed into nonperforming status in the first quarter of 2016.

"I am encouraged by our results this quarter, particularly with commercial loan growth and our continuing improvement with efficiency. I'm also pleased with the progress our team has made thus far in 2016 with the build out of our presence in Ohio," stated T. Michael Price, President and Chief Executive Officer. "This quarter also marks our third consecutive quarter of positive operating leverage, in that revenue growth has outpaced expenses. This was no small task in the face of today's operating environment."

Financial Results Summary

For the three months ended March 31, 2016, net income was $12.5 million, or $0.14 diluted earnings per share, compared to net income of $10.1 million, or $0.11 diluted earnings per share, in the fourth quarter of 2015 and net income of $14.2 million, or $0.16 diluted earnings per share, in the first quarter of 2015. The increase in net income compared to the fourth quarter of 2015 was driven by a $5.0 million decrease in noninterest expense as a result of one-time severance, acquisition and real-estate expenses during the fourth quarter of 2015 and a $0.6 million increase in net interest income in the first quarter of 2016, offset by a decrease of $1.8 million in noninterest income, excluding net securities gains. The decrease in net income compared to the first quarter of 2015 was primarily driven by an increase in the provision for credit losses of $5.4 million, offset by lower noninterest expense of $1.7 million.

Return on average assets and return on average equity were 0.76% and 6.87%, respectively, for the first quarter of 2016, as compared to 0.91% and 8.03% in the first quarter of 2015.

Net Interest Income and Net Interest Margin

First quarter 2016 net interest income, on a fully taxable-equivalent basis, increased by $0.6 million to $49.7 million as compared to the fourth quarter of 2015. The increase from the prior quarter was primarily the result of strong commercial loan growth combined with a three basis point increase in the net interest margin to 3.29%. The yield on interest-earning assets improved by six basis points, offset by a four basis point increase in funding costs. A $96.3 million increase in average interest-earning assets also contributed to the improvement in net interest income.

As compared to the first quarter of 2015, net interest income, on a fully taxable-equivalent basis, increased by $1.8 million. The net interest margin of 3.29% in the first quarter of 2016 was six basis points lower than in the first quarter of 2015, of which seven basis points was attributable to a $1.0 million FHLB special dividend received in the first quarter of 2015, a four basis point increase in funding costs and a three basis point decline in the yield on interest-earning assets between the periods, partially offset by a $258.6 million, or 4.4%, increase in average interest-earning assets.

Total deposits grew by $105.8 million in the first quarter, for an annualized growth rate of 10.1%. Average deposits increased $25.3 million in the first quarter of 2016 from the prior quarter. Average deposits decreased $47.4 million from the year-ago quarter, which include the addition of $89.9 million in deposits acquired as part of the First Community acquisition, due in part to the intentional runoff of higher-cost brokered time deposits in 2015. Average brokered time deposits of $3.4 million were relatively flat compared to the fourth quarter of 2015; however, brokered deposits decreased $118.4 million from the year-ago quarter. Average short-term borrowings increased $68.4 million from the prior quarter and increased $398.4 million over the year-ago period, partly due to the aforementioned runoff in brokered deposits. Average noninterest-bearing demand deposits were flat as compared to the prior quarter and increased $94.2 million from the year-ago quarter, due in part to the addition of $11.6 million related to the First Community acquisition. Noninterest-bearing demand deposits currently comprise 26.9% of total deposits. Average interest-bearing demand and savings deposits increased $46.5 million from the prior quarter and $52.8 million from the year-ago period, which includes the addition of $36.1 million related to the First Community acquisition.

Credit Quality

The provision for credit losses totaled $6.5 million for the three months ended March 31, 2016, an increase of $0.4 million as compared to the prior quarter and an increase of $5.4 million from the same quarter last year. The first quarter 2016 provision for credit losses included a $6.0 million specific reserve for a steel servicing company placed into nonperforming status in the first quarter of 2016.

At March 31, 2016, nonperforming loans were $61.8 million, an increase of $11.0 million from December 31, 2015 and an increase of $12.6 million from March 31, 2015. The increase from the fourth quarter of 2015 was primarily related to the aforementioned commercial credit placed into nonperforming status in the first quarter of 2016. Nonperforming loans as a percentage of total loans were 1.29%, 1.08% and 1.11% for the periods ended March 31, 2016, December 31, 2015 and March 31, 2015, respectively.

During the first quarter of 2016, net charge-offs were $2.1 million, compared to $3.8 million in the prior quarter and $6.5 million in the first quarter of 2015. Net charge-offs in the first quarter of 2016 included a $1.1 million charge-off of a previously established reserve for an energy company that was classified as nonaccrual in the third quarter of 2013. Net charge-offs in the fourth quarter of 2015 included a $2.0 million charge-off of a previously established reserve for a manufacturing company that was classified as nonaccrual in the third quarter of 2015. Net charge-offs for the first quarter of 2015 included $3.1 million for the aforementioned loan to an energy company and a $1.2 million write-down on a nonaccrual loan to an equipment distributor.

The allowance for credit losses was $55.2 million at March 31, 2016, and as a percentage of total loans outstanding was 1.15%, 1.08% and 1.05% for March 31, 2016, December 31, 2015 and March 31, 2015, respectively. General reserves as a percentage of non-impaired loans were 0.88%, 0.94% and 0.98% for March 31, 2016, December 31, 2015 and March 31, 2015, respectively.

Other real estate owned (OREO) acquired through foreclosure was $8.6 million at March 31, 2016 as compared to $9.4 million at December 31, 2015 and $7.0 million at March 31, 2015. There were no significant additions to OREO in the first quarter of 2016.

Noninterest Income

Noninterest income, excluding net securities gains, decreased $1.8 million in the first quarter of 2016 as compared to the prior quarter and decreased $0.4 million compared to the same quarter last year. The decrease from the prior quarter is primarily the result of a $1.2 million decline in the fair market value of commercial loan interest rate swaps (offset by a $0.4 million increase in swap income) and a decrease of $0.5 million in service charges on deposit accounts and card-related interchange income as a result of seasonal fluctuations.

The decrease from the prior-year period of $0.4 million is primarily related to a decline of $0.8 million in the fair market value of commercial loan interest rate swaps (offset by a $0.1 million increase in swap income), offset by a $0.5 million increase in service charges on deposit accounts and card-related interchange income and a $0.2 million increase in gain on the sale of mortgage loans.

Noninterest Expense

Noninterest expense decreased $5.0 million in the first quarter of 2016 from the prior quarter and decreased $1.7 million as compared to the first quarter of 2015. The decrease compared to the prior quarter is primarily attributable to several one-time expenses in the fourth quarter of 2015, which included a $2.1 million one-time severance charge for the realignment of our consumer businesses, $0.9 million of one-time expenses related to the acquisition of First Community Bank, and $0.6 million related to the disposition of two former headquarter bank facilities. In addition, provision expense associated with the reserve for unfunded loan commitments, which is included in other operating expenses, decreased $1.0 million compared to the fourth quarter of 2015.

Noninterest expense decreased $1.7 million in the first quarter of 2016 as compared to the first quarter of 2015 and is primarily attributable to decreases of $0.4 million in occupancy expense related to lower snow removal and utilities, a decline of $0.9 million in the reserve for unfunded loan commitments, which is included in other operating expenses, lower operational losses of $0.8 million due to abnormally high debit card fraud losses as a result of merchant breaches in the first quarter of 2015, offset by a $0.3 million increase in data processing expense due to the issuance of chip debit cards to our customers during the first quarter of 2016.

Full time equivalent staff declined to 1,216 at March 31, 2016 from 1,265 and 1,299 at December 31, 2015 and March 31 2015, respectively. The decrease is primarily attributable to staff reductions as a result of the realignment of our consumer businesses, offset by the recent expansion of mortgage and retail banking in our Ohio market.

The efficiency ratio, calculated as total noninterest expense as a percentage of total revenue (which consists of net interest income on a fully taxable equivalent basis plus total noninterest income, excluding net securities gains), was 60.10% and 64.20% for the three months ended March 31, 2016 and 2015, respectively. The core efficiency ratio, which excludes securities gains and losses, amortization of intangible assets and other nonrecurring items, was 59.53% and 62.82% for the three months ended March 31, 2016 and 2015, 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 $0.07 per share, which is payable on May 20, 2016 to shareholders of record as of May 6, 2016. This dividend represents a 3.1% projected annual yield utilizing the April 25, 2016 closing market price of $9.17.

On January 27, 2016, First Commonwealth's Board of Directors authorized an additional $25.0 million common stock repurchase program, under which the corporation repurchased 19,447 shares at an average price of $8.42 per share in the first quarter, totaling $0.2 million.

First Commonwealth's capital ratios for Total, Tier I, Leverage and Common Equity Tier I at March 31, 2016 were 12.1%, 11.1%, 9.8% and 9.9%, respectively. Our current capital levels meet the fully-phased in Basel III capital requirements issued by the U.S. bank regulators.

Conference Call

First Commonwealth will host a quarterly conference call to discuss its financial results for the first quarter 2016 on Wednesday, April 27, 2016 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 two hours 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 (NYSE: FCF), headquartered in Indiana, Pennsylvania, is a financial services company with $6.7 billion in total assets and 110 banking offices in 17 counties throughout western and central Pennsylvania and central Ohio, and a Corporate Banking Center in northeast 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 our 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.