First Commonwealth Announces First Quarter 2012 Financial Results and Dividend Increase

INDIANA, Pa., April 24, 2012 /PRNewswire/ -- First Commonwealth Financial Corporation (NYSE: FCF) today reported net income of $11.1 million, or $0.11 diluted earnings per share, for the first quarter ended March 31, 2012, as compared to net income of $5.2 million, or $0.05 diluted earnings per share, in the first quarter of 2011. The increase in net income was primarily the result of a lower provision for credit losses and an increase in noninterest income.

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Annualized return on average assets for the first quarter 2012 was 0.75% as compared to 0.37% for the same period last year. Return on average shareholders' equity was 5.81% and 2.82% for the periods ended March 31, 2012 and March 31, 2011, respectively.

T. Michael Price, President and Chief Executive Officer, stated, "Our priority remains working to ensure that credit uncertainty is behind us. We are pleased with the results this quarter regarding loan loss provisions, nonperforming assets and criticized loan levels. There is always more to be done, but I believe the evolution and strengthening of our credit culture will ultimately provide us with a sustainable competitive advantage."

Net Interest Income and Net Interest Margin

First quarter 2012 net interest income, on a fully taxable equivalent basis, was unchanged at $49.4 million as compared to the first quarter of 2011. Interest-earning assets increased $252.3 million, or 5%, from March 31, 2011 to March 31, 2012, which was offset by a 12 basis point drop in the net interest margin. Net interest margin was 3.75%, 3.78% and 3.87% for the three-month periods ended March 31, 2012, December 31, 2011 and March 31, 2011, respectively.

Significant changes to First Commonwealth's balance sheet during the first quarter of 2012, as compared to December 31, 2011 include: 

• A $62.2 million increase in investment securities.
• A $79.6 million increase in loans included a mix of consumer home equity, commercial and indirect auto loans, partially offset by a decrease in residential mortgage loans.
• Continued growth and mix improvements in deposits. Overall deposits increased $129.1 million, or 3%; $103.8 million of that growth was lower costing transaction and savings deposits.
• Long-term and short-term borrowings decreased $4.1 million.

"We are committed at every level of the organization to achieving operating excellence that drives earnings," said Mr. Price.  "Noteworthy to accomplishing this will be our ability to generate core asset and low-cost deposit growth as efficiently as possible, while purposefully managing our funding costs, loan spreads and overall business mix. This quarter's balance sheet growth is indicative that our strategies along these lines continue to gain traction."

Credit Quality

The provision for credit losses was $3.8 million for the first quarter of 2012 as compared to $13.8 million for the comparable quarter in 2011. During the first quarter of 2012, net charge-offs were $4.3 million, or 0.42% of average loans, annualized, compared to $8.3 million, or 0.80% of average loans, annualized, in the first quarter of 2011. The most substantial loan charge-offs for the first quarter of 2012 included $1.2 million on a nonperforming commercial credit. The allowance for credit losses as a percentage of total loans outstanding was 1.47%, 1.51% and 1.88% for March 31, 2012, December 31, 2011 and March 31, 2011, respectively.

At March 31, 2012, nonperforming loans were $89.7 million, a decrease of $22.5 million, or 20%, from December 31, 2011. The major loans that were placed into nonperforming status during the first quarter of 2012 included $3.0 million for two Pennsylvania commercial relationships and one large consumer mortgage loan. That increase was offset by an $11.3 million commercial loan that was paid off; $5.3 million for a commercial real estate loan which was transferred to the Held-for-Sale classification in the fourth quarter of 2011 and sold in the first quarter of 2012; $1.2 million for the charge-off of a commercial credit and $1.2 million for a commercial real estate loan transferred to Other Real Estate Owned (OREO). Nonperforming loans as a percentage of total loans were 2.17%, 2.76% and 3.45% for the periods ended March 31, 2012, December 31, 2011 and March 31, 2011, respectively. Subsequent to March 31, 2012, an additional loan, totaling $4.1 million in the Held-for-Sale classification, was sold in the first week of April 2012. This sale resulted in a gain of $1.2 million and will be reflected in the financial results as of and for the quarter ending June 30, 2012.

OREO acquired through foreclosure was $21.3 million at March 31, 2012 which represented a decrease of $8.7 million from December 31, 2011. During the first quarter of 2012, a $1.2 million commercial loan was transferred to OREO from nonperforming status as we moved toward resolving this troubled credit. Offsetting this increase was a $2.8 million write-down associated with one commercial OREO property, based upon an updated appraisal, which currently has a remaining book value of $1.2 million, and $6.8 million from the sale of one commercial property.

Noninterest Income

Noninterest income, excluding net security gains (losses), increased $3.6 million, or 26%, in the first quarter of 2012 compared to the same period last year. This increase is primarily the result of a $1.7 million gain from the sale of a loan that was placed in the Held-for-Sale classification in the fourth quarter of 2011, $1.0 million in rental revenue from an OREO property that was sold during the first quarter of 2012 and $0.8 million in swap-related income. There were no other-than-temporary impairment charges for the first quarter of 2012 or the first quarter of 2011 and there were no net securities gains recorded in the first quarter of 2012, as compared to $0.6 million of net securities gains during the first quarter of 2011.

Noninterest Expense

Noninterest expense increased $5.3 million, or 13%, in the first quarter of 2012, as compared to the first quarter of 2011, primarily from the $2.8 million write-down to current fair value for an OREO property; $1.3 million increase in the reserve for unfunded loan commitments and $1.2 million of operating expenses related to an OREO property that was sold during the first quarter of 2012.

Staff expense increased $0.6 million compared to the first quarter of 2011 primarily as a result of increasing the lending and other business relationship staffs and expanded incentive programs to encourage new business production. These increases were partially offset by restructurings and refinements in our support and retail distribution areas. Full time equivalent staff was 1,426 and 1,519 for the periods ended March 31, 2012 and 2011, respectively. Other meaningful changes in noninterest expense include a $0.6 million reduction in FDIC insurance premiums.

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 quarter ended March 31, 2012 as compared to 66% for the comparable period in 2011. The increase in the efficiency ratio was primarily the result of higher loan collection costs for troubled loans and the aforementioned write-down of an OREO property.

Dividends and Capital

First Commonwealth Financial Corporation declared a common stock quarterly dividend of $0.05 per share on April 24, 2012 which is payable on May 18, 2012 to shareholders of record as of May 4, 2012. This dividend represents a 67% increase over the previous quarterly dividend of $0.03 per share and a 3% projected annual yield utilizing the March 31, 2012 closing market price of $6.12.

First Commonwealth's capital ratios for Leverage, Total and Tier I at March 31, 2012 were 11.74%, 14.77% and 13.52%, respectively.

Conference Call

First Commonwealth will host a quarterly conference call to discuss its financial results for the first quarter of 2012 on Wednesday, April 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 $6.0 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