First Commonwealth Announces Second Quarter 2015 Financial Results; Declares Quarterly Dividend

INDIANA, PA--(Marketwired - July 29, 2015) - First Commonwealth Financial Corporation (NYSE: FCF) today announced financial results for the second quarter of 2015.

Second Quarter 2015 Highlights

Franchise Growth

• Solid loan growth of $57.2 million from the prior quarter, or 5.1% on an annualized basis; and
• Announcement of a definitive agreement to acquire Columbus, Ohio based First Community Bank.

Net Income

• Second quarter net income was $13.4 million, or $0.15 diluted earnings per share. Net income was impacted by the following items:
  • Net interest income decreased by $0.8 million as compared to the prior quarter, primarily as a result of a special Federal Home Loan Bank dividend of $1.0 million received in the first quarter of 2015;
  • Noninterest income, excluding net securities gains, increased $2.2 million from the previous quarter, driven by a $0.7 million increase in commercial loan swap-related revenues and a $0.6 million increase in service charges on deposit accounts;
  • Noninterest expense increased $0.8 million from the previous quarter, primarily attributable to a $1.1 million write-down on other real estate owned (OREO) and a $0.4 million write-down for an anticipated sale of a former headquarters building;
  • Provision for credit losses totaled $3.0 million, a decrease of $0.3 million from the same quarter last year; and
  • Asset quality continued to improve with nonperforming loans decreasing $4.1 million, or 8.3%, compared to the prior quarter.

"Our performance this quarter reflects solid loan growth, improved noninterest income and disciplined expense management as a result of the investments in technology and fee businesses that we made in 2014," stated T. Michael Price, President and Chief Executive Officer. "Our expansion into the Columbus market through the pending acquisition of First Community Bank will provide a platform to expand upon our existing commercial lending activity in the vibrant and strategically attractive Central Ohio market."

Financial Results Summary

For the three months ended June 30, 2015, net income was $13.4 million, or $0.15 diluted earnings per share, compared to net income of $14.2 million, or $0.16 diluted earnings per share, in the first quarter of 2015 and net income of $11.9 million, or $0.13 diluted earnings per share, in the second quarter of 2014. The decrease in net income compared to the first quarter of 2015 was a result of a decrease in net interest income of $0.8 million, an increase in the provision for credit losses of $1.9 million, and an increase in noninterest expense of $0.8 million, offset by a $2.2 million increase in noninterest income excluding net securities gains. The increase in net income compared to the second quarter of 2014 was driven by an increase in net interest income of $1.0 million and a decrease in noninterest expense of $1.8 million, offset by a $0.7 million decrease in noninterest income excluding net securities gains.

For the six months ended June 30, 2015, net income was $27.7 million, or $0.31 diluted earnings per share, compared to net income of $24.2 million, or $0.26 diluted earnings per share, for the comparable period in 2014. The increase in net income compared to 2014 was primarily the result of an increase in net interest income of $2.5 million, a decrease in the provision for credit losses of $2.4 million and a decrease in noninterest expense of $1.8 million, offset by a $1.5 million decrease in noninterest income excluding net securities gains.

For the six months ended June 30, 2015, return on average assets and return on average equity were 0.88% and 7.80%, respectively, as compared to 0.78% and 6.79% in the first half of 2014. Return on average tangible common equity was 10.1% in the first half of 2015, as compared to 8.7% for the first half of 2014.

Net Interest Income and Net Interest Margin

Second quarter 2015 net interest income, on a fully taxable-equivalent basis, decreased by $0.8 million to $47.2 million, as compared to $48.0 million in the first quarter of 2015. The decrease from the prior quarter was primarily the result of a nine basis point decrease in the net interest margin to 3.26%, of which seven basis points was attributable to a special FHLB dividend of $1.0 million in the first quarter of 2015. The yield on interest-earning assets declined by 10 basis points, partially offset by a two basis point decline in funding costs.

As compared to the second quarter of 2014, net interest income, on a fully taxable-equivalent basis, increased by $1.0 million. The net interest margin remained stable at 3.26% in the second quarter of 2015 as compared to the same period of 2014. The increase in net interest income was due to a $131.6 million, or 2.3%, increase in average interest-earning assets and a 10 basis point decline in funding costs, offset by an eight basis point decline in the yield on interest-earning assets.

For the six months ended June 30, 2015, net interest income, on a fully taxable-equivalent basis, increased $2.5 million to $95.2 million as compared to the same period of 2014. The increase in net interest income was a result of a $145.5 million increase in average interest-earning assets, a nine basis point decline in funding costs and a special FHLB dividend of $1.0 million, offset by a seven basis point decline in the yield on interest-earning assets.

At June 30, 2015, loans totaled $4.5 billion, representing growth in end of period loan balances of $57.2 million from the prior quarter and $166.5 million from the year-ago quarter. Based on average balances, loan growth for the second quarter of 2015 was $20.7 million over the prior quarter and $199.7 million over the year-ago quarter. Average deposits decreased $25.8 million in the second quarter of 2015 from the prior quarter and $327.8 million from the same year-ago quarter, partially due to the intentional runoff of higher-cost brokered time deposits in favor of more cost-effective short-term borrowings. Average brokered time deposits decreased by $50.3 million in the second quarter of 2015 and $232.3 million from the year-ago quarter. As a result, average short-term borrowings increased $63.4 million from the prior quarter and $553.0 million over the year-ago period. Average noninterest-bearing demand deposits increased $43.2 million as compared to the prior quarter and $76.7 million from the year-ago quarter. Noninterest-bearing demand deposits currently comprise 25.4% of total deposits. Average interest-bearing demand and savings deposits increased $25.6 million from the prior quarter and $14.6 million from the year-ago period.

Credit Quality

The provision for credit losses totaled $3.0 million for the three months ended June 30, 2015, an increase of $1.9 million as compared to the prior quarter and a decrease of $0.3 million from the same quarter last year.

At June 30, 2015, nonperforming loans were $45.1 million, a decrease of $4.1 million from March 31, 2015 and a decrease of $1.2 million from June 30, 2014. Nonperforming loans as a percentage of total loans were 1.00%, 1.11% and 1.07% for the periods ended June 30, 2015, March 31, 2015 and June 30, 2014, respectively.

During the second quarter of 2015, net charge-offs were $4.4 million, compared to $6.5 million in the first quarter of 2015 and $7.1 million in the second quarter of 2014. Net charge-offs for the second quarter of 2015 included a $2.3 million write-down on a loan to a contractor that was classified as nonaccrual during the fourth quarter of 2014. A loan loss reserve of $2.1 million had been previously set aside for this credit. First quarter 2015 charge-offs included $3.1 million for a loan to an energy company that was classified as nonaccrual during the third quarter of 2013. A loan loss reserve of $2.4 million had been previously set aside for this credit. Also included in net charge-offs in the first quarter of 2015 was a $1.2 million write-down on a nonaccrual loan to an equipment distributor, and the remaining outstanding balance of $3.0 million for this credit was transferred to loans held for sale. A loan loss reserve of $2.7 million had been previously set aside for this credit. Second quarter 2014 charge-offs included $5.8 million for a credit that was sold during the quarter. A loan loss provision of $4.5 million was set aside for this credit in the first quarter of 2014, with an additional $1.3 million provision in the second quarter of 2014.

The allowance for credit losses was $45.3 million at June 30, 2015, and as a percentage of total loans outstanding was 1.01%, 1.05% and 1.17% for June 30, 2015, March 31, 2015 and June 30, 2014, respectively. General reserves as a percentage of non-impaired loans were 0.98%, 0.98% and 1.04% for June 30, 2015, March 31, 2015 and June 30, 2014, respectively.

OREO acquired through foreclosure was $6.5 million at June 30, 2015 as compared to $7.0 million at March 31, 2015 and $7.8 million at June 30, 2014. There were no significant additions to OREO in the second quarter of 2015.

Noninterest Income

Noninterest income, excluding net securities gains, increased $2.2 million, or 15.9%, in the second quarter of 2015 as compared to the prior quarter and decreased $0.7 million, or 4.0%, compared to the same quarter last year. The increase from the prior quarter was primarily the result of increases of $0.7 million in commercial loan swap-related activities included in other income, $0.6 million in service charges on deposit accounts primarily due to higher fee income related to overdrafts and insufficient funds, $0.3 million in interchange revenue and $0.2 million in mortgage banking revenue. The decrease from the prior-year period of $0.7 million is primarily related to decreases of $0.3 million in service charges on deposit accounts and a prior period gain of $2.0 million from the sale of an OREO property in the second quarter of 2014, offset by a $0.6 million increase in insurance and retail brokerage commissions due to increased production and our recent agency acquisition, $0.6 million in mortgage banking revenue and $0.3 million related to the gain on sale of repossessed assets.

For the six months ended June 30, 2015, noninterest income, excluding net securities gains, decreased $1.5 million, or 4.7%, as compared to the same period of 2014, primarily attributable to the aforementioned $2.0 million gain from the sale of an OREO property in the second quarter of 2014, a $1.2 million gain from the sale of our registered investment advisory business in the first quarter of 2014, together with increases of $1.4 million in insurance and retail brokerage commissions due to increased production and our recent agency acquisition, and $1.0 million in mortgage banking revenue. These increases in noninterest income were offset by a $0.3 million reduction in commercial loan swap-related activities included in other income over the same period.

Noninterest Expense

Noninterest expense increased $0.8 million in the second quarter of 2015 from the prior quarter and decreased $1.8 million as compared to the second quarter of 2014. The increase as compared to the linked quarter is primarily attributable to a $1.1 million write-down on three OREO properties as a result of a new appraisal, a $0.4 million loss on the write-down for an anticipated sale of a building that previously had been the headquarters of an acquired bank and $0.4 million of higher collection and repossession expenses. Improvements compared to the prior quarter included $0.6 million in occupancy expense due to lower snow removal and utilities and $0.7 million of lower operational losses. The decrease from the prior year period of $1.8 million includes improvements of $2.6 million in IT conversion-related expenses that were incurred in the second quarter of 2014 and $0.5 million in net furniture and equipment expense due to less software/hardware maintenance and programming expense post conversion. These improvements in expense in the second quarter of 2015 were offset by higher collection and repossession expenses of $0.5 million and the aforementioned $1.1 million OREO write-down and $0.4 million loss on write-down of a building compared to the prior year period.

For the six months ending June 30, 2015, noninterest expense decreased $1.8 million, or 2.2%, as compared to the same period of 2014, driven by $5.0 million in IT conversion-related expenses that were incurred in the first half of 2014 and a decrease of $1.1 million in furniture and equipment expense related to less software/hardware maintenance and programming expense post conversion. Also affecting the comparison of the periods was a $0.9 million external fraud loss recovery in the prior year period. Increases in expense compared to the year-ago period included $1.0 million in salaries and benefits due in part to the launch of our mortgage initiative and the acquisition of an insurance agency, $0.4 million in occupancy expense due to higher snow removal and utilities, as well as a $0.9 million increase in debit card fraud losses primarily due to large merchant breaches and a $0.8 million increase in reserves for unfunded loan commitments included in other operating expenses.

Full time equivalent staff declined to 1,289 at June 30, 2015 from 1,381 at June 30, 2014. The decrease is primarily attributable to staff reductions as a result of the completion of our IT systems conversion, reductions in our branch staffing model and the closure of three branch offices in April 2015, offset by the recent launch of our mortgage initiative and the acquisition of an insurance agency.

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 63.96% and 64.08% for the three and six months ended June 30, 2015, respectively, as compared to 67.09% and 66.05% for the three and six months ended June 30, 2014.

Dividends and Capital

First Commonwealth Financial Corporation declared a common stock quarterly dividend of $0.07 per share, which is payable on August 21, 2015 to shareholders of record as of August 10, 2015. This dividend represents a 3.1% projected annual yield utilizing the July 28, 2015 closing market price of $9.16.

During the second quarter of 2015, First Commonwealth completed a previously announced $25.0 million common stock repurchase program, under which the corporation repurchased 2,885,020 shares at an average price of $8.70 per share.

First Commonwealth's capital ratios for Total, Tier I, Leverage and Common Equity Tier I at June 30, 2015 were 12.4%, 11.5%, 10.0% and 10.2%, 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 second quarter 2015 on Wednesday, July 29, 2015 at 2:00 PM (ET). The call can be accessed by dialing (toll free) 1-877-353-0037 and entering the conference identification #80881850 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, headquartered in Indiana, Pennsylvania, is a financial services company with $6.3 billion in total assets, 107 banking offices in 15 counties throughout western and central Pennsylvania, and a Corporate Banking Business 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.

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, borrowing 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.