First Commonwealth Announces First Quarter 2015 Financial

INDIANA, PA --(Marketwired - April 28, 2015) - First Commonwealth Financial Corporation ( NYSE : FCF ) today announced financial results for the first quarter of 2015.

First Quarter 2015 Highlights

Profitability

• Improvement in return on average assets, return on average equity, earnings per share, net interest margin and efficiency compared to the prior quarter and the prior year

Net Income

• First quarter net income improved to $14.2 million, or $0.16 diluted earnings per share. Net income was impacted by the following items:
  • Net interest income improved due to an increase in asset yields, reduction in funding costs and a special Federal Home Loan Bank (FHLB) dividend of $1.0 million;
  • Net interest margin expanded 13 basis points to 3.35% as compared to the linked quarter, of which seven basis points were attributable to the FHLB dividend;
  • Asset quality continued to improve, with nonperforming loans decreasing $6.0 million, or 10.9%, compared to the prior quarter and the provision for loan losses declining to $1.2 million; and
  • Noninterest income, excluding net securities gains, increased $0.7 million, or 5.2%, over the linked quarter, driven by a 23% increase in insurance and retail brokerage commissions.

"Our performance in the first quarter is largely built upon the foundation established through our 2014 strategic initiatives, including our systems conversion, mortgage launch, corporate banking expansion into Northeast Ohio and the acquisition of an insurance agency," stated T. Michael Price, President and Chief Executive Officer. "Our management of expenses has remained disciplined, and we continue to realize savings as a result of the conversion. At the same time, we have maintained our momentum in growing average loans, and we have seen encouraging movement in our net interest margin."

Financial Results Summary

For the three months ended March 31, 2015, net income was $14.2 million, or $0.16 diluted earnings per share, compared to net income of $7.7 million, or $0.08 diluted earnings per share, in the fourth quarter of 2014 and net income of $12.3 million, or $0.13 diluted earnings per share, in the first quarter of 2014. The increase in net income compared to the fourth quarter of 2014 was driven by a decrease in the provision for credit losses of $1.4 million, an increase in net interest income of $1.0 million, an increase in noninterest income, excluding net securities gains, of $0.7 million and a decrease in noninterest expense of $7.5 million. The decrease in noninterest expense is primarily a result of nonrecurring expenses in the prior quarter that included a legal contingency reserve and a building donation to a local university, which were offset by a partial recovery of a previous external fraud loss.

Return on average assets and return on average equity were 0.91% and 8.03%, respectively, for the first quarter of 2015, as compared to 0.80% and 6.97% in the first quarter of 2014.

Net Interest Income and Net Interest Margin

First quarter 2015 net interest income, on a fully taxable-equivalent basis, increased by $1.0 million to $48.0 million, as compared to $47.0 million in the fourth quarter of 2014. The increase from the prior quarter was primarily the result of a 13 basis point increase in the net interest margin to 3.35%. The yield on interest-earning assets improved by 11 basis points, of which seven basis points was attributable to a special FHLB dividend of $1.0 million. A two basis point decline in funding costs and a $20.9 million increase in average interest-earning assets also contributed to the improvement in net interest income.

As compared to the first quarter of 2014, net interest income, on a fully taxable-equivalent basis, increased by $1.5 million. The net interest margin of 3.35% in the first quarter of 2015 was two basis points higher than in the first quarter of 2014 due to the aforementioned $1.0 million FHLB special dividend, a $159.6 million, or 2.8%, increase in average interest-earning assets and a nine basis point decline in funding costs, partially offset by a six basis point decline in the yield on interest-earning assets between the periods.

Based on average balances, loan growth for the first quarter of 2015 was $48.2 million over the prior quarter and $170.9 million over the year-ago quarter. The fourth quarter average loan balance did not reflect a substantial amount of loans booked toward the end of the quarter. End of period loan balances declined by $16.3 million from December 31, 2014 to March 31, 2015, as growth in commercial loans was more than offset by declines in direct installment loan balances.

Average deposits decreased $95.1 million in the first quarter of 2015 from the prior quarter and $290.8 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 $79.9 million in the first quarter of 2015 and $174.1 million from the year-ago quarter. As a result, average short-term borrowings increased $129.5 million from the prior quarter and $488.1 million over the year-ago period. Average noninterest-bearing demand deposits increased $7.0 million as compared to the prior quarter and $106.2 million from the year-ago quarter. Noninterest-bearing demand deposits currently comprise 24.2% of total deposits. Average interest-bearing demand and savings deposits decreased $56.3 million from the year-ago period, but increased $25.7 million from the prior quarter.

Credit Quality

The provision for credit losses totaled $1.2 million for the three months ended March 31, 2015, a decrease of $1.4 million as compared to the prior quarter and a decrease of $2.1 million from the same quarter last year.

At March 31, 2015, nonperforming loans were $49.2 million, a decrease of $6.0 million from December 31, 2014 and a decrease of $7.0 million from March 31, 2014. Nonperforming loans as a percentage of total loans were 1.11%, 1.24% and 1.32% for the periods ended March 31, 2015, December 31, 2014 and March 31, 2014, respectively.

During the first quarter of 2015, net charge-offs were $6.5 million, compared to $1.3 million in the prior quarter and $3.0 million in the first quarter of 2014. Net charge-offs for the quarter 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 set aside for this credit. There were no significant individual charge-offs in the fourth and first quarters of 2014.

The allowance for credit losses was $46.7 million at March 31, 2015, and as a percentage of total loans outstanding was 1.05%, 1.17% and 1.28% for March 31, 2015, December 31, 2014 and March 31, 2014, respectively. General reserves as a percentage of non-impaired loans were 0.98%, 0.97% and 1.05% for March 31, 2015, December 31, 2014 and March 31, 2014, respectively.

Other real estate owned (OREO) acquired through foreclosure was $7.0 million at March 31, 2015 as compared to $7.2 million at December 31, 2014 and $10.1 million at March 31, 2014. There were no significant additions to OREO in the first quarter of 2015.

Noninterest Income

Noninterest income, excluding net securities gains, increased $0.7 million, or 5.2%, in the first quarter of 2015 as compared to the prior quarter and decreased $0.8 million, or 5.6%, compared to the same quarter last year. The increase from the prior quarter is primarily the result of an increase of $0.6 million in commercial loan swap-related revenues included in other income and a $0.4 million increase in insurance and retail brokerage commissions due to increased production and our recent agency acquisition, offset by a decrease of $0.3 million in service charges on deposit accounts. The decrease from the prior-year period of $0.8 million is primarily related to decreases of $0.5 million in service charges on deposit accounts and a prior period gain of $1.2 million from the sale of our registered advisory business in the first quarter of 2014, offset by a $0.8 million increase in insurance and retail brokerage commissions due to increased production and our recent agency acquisition. Service charges on deposit accounts were down primarily due to lower fees for overdrafts and insufficient funds.

There were $0.1 million in securities gains in the first quarter of 2015 related to the liquidation of a trust preferred security. During the fourth quarter of 2014, a gain of $0.5 million was recognized as the result of a recovery on a trust preferred security.

Noninterest Expense

Noninterest expense decreased $7.5 million in the first quarter of 2015 from the prior quarter and remained flat as compared to the first quarter of 2014. The decrease compared to the linked quarter is primarily attributable to the aforementioned $8.6 million legal reserve and $0.7 million building donation to a local university in the fourth quarter of 2014, which were partially offset by a $2.1 million external fraud recovery in the fourth quarter of 2014. Other improvements compared to the prior quarter included $0.3 million less in collection and repossession expense, $0.3 million less in professional fees and services and a sales tax refund of $0.3 million included in other operating expense. These improvements in expense in the first quarter were offset by an increase of $0.8 million in occupancy expense due to higher snow removal and utilities, a $0.8 million increase in debit card fraud losses primarily due to large merchant breaches reported in the fourth quarter of 2014, and a $0.3 million increase in reserves for unfunded loan commitments that is included in other operating expenses.

Changes in the composition of noninterest expense in the first quarter of 2015 as compared to the first quarter of 2014 included improvements of $2.4 million in IT conversion-related expenses that were incurred in the first quarter of 2014, a decrease of $0.6 million in furniture and equipment expense related to less software/hardware maintenance and programming post conversion, and a sales tax refund of $0.3 million included in other operating expense in the first quarter of 2015. Also affecting the comparison of the periods was a partial recovery of $0.9 million for a 2012 external fraud loss in the prior year period. Increases in expense compared to the year-ago period included $0.9 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 $0.8 million increase in debit card fraud losses primarily due to large merchant breaches reported in the fourth quarter of 2014, and a $0.8 million increase in reserves for unfunded loan commitments included in other operating expenses.

Full time equivalent staff declined to 1,299 at March 31, 2015 from 1,333 at March 31 2014. The decrease is primarily attributable to staff reductions as a result of the completion of our IT systems conversion and reductions in our branch network, 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 64.20% and 64.98% for the three months ended March 31, 2015 and 2014, respectively.

Dividends and Capital

First Commonwealth Financial Corporation declared a common stock quarterly dividend of $0.07 per share, which is payable on May 22, 2015 to shareholders of record as of May 8, 2015. This dividend represents a 3.1% projected annual yield utilizing the April 27, 2015 closing market price of $8.90.

On January 27, 2015, First Commonwealth's Board of Directors authorized an additional $25.0 million common stock repurchase program, under which the corporation repurchased 2,171,403 shares at an average price of $8.57 per share in the first quarter, totaling $18.6 million.

First Commonwealth's capital ratios for Total, Tier I, Leverage and Common Equity Tier I at March 31, 2015 were 12.3%, 11.4%, 9.9% and 10.1%, 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 2015 on Wednesday, April 29, 2015 at 2:00 PM (ET). The call can be accessed by dialing (toll free) 1-877-353-0037 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, 110 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, 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.

Note: Management believes that it is a standard practice in the banking industry to present these non-gaap measures. These measures provide useful information to management and investors by allowing them to make peer comparisons.