INDIANA, Pa., July 21 /PRNewswire-FirstCall/ -- First Commonwealth Financial Corporation reported financial results for the second quarter ended June 30, 2006.
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Second Quarter Results
Net income was $12.2 million for the second quarter of 2006 compared to net income of $17.8 million for the second quarter of 2005. Basic and diluted earnings per share were $0.18 for the second quarter of 2006 compared to $0.26 for the comparable period of 2005. Return on equity was 9.39% and return on assets was 0.83% for the second quarter of 2006 compared to 13.55% and 1.15% respectively for the second quarter of 2005. The decrease in net income in the second quarter 2006 was due in large part to certain gains that were included in the second quarter 2005 results. The second quarter of 2005 included a $3.1 million pre-tax gain on the sale of a branch office ($2.0 million after tax) and a $2.0 million gain on the sale of First Commonwealth's merchant services business ($1.3 million after tax). Additionally, net interest income was $2.3 million lower in the second quarter 2006 than that of the 2005 period. The provision for credit losses increased $1.3 million in the second quarter of 2006 compared to the second quarter of 2005 largely due to the deterioration of a single large commercial loan. Total other expenses declined $1.9 million in the second quarter 2006 when compared to the second quarter of 2005.
In the second quarter of 2006, First Commonwealth continued its expansion in the Pittsburgh region through:
- An agreement to acquire Laurel Capital Group, Inc., with total assets
of $314 million, headquartered in Allison Park, Pennsylvania. Laurel
Capital Group is the parent company of Laurel Savings Bank which
operates eight retail branches in Allegheny and Butler Counties,
Pennsylvania. The agreement was entered into in April 2006 and the
merger is expected to be completed during the third quarter of 2006.
- Opening a new branch office in the Pittsburgh-area market as well as
beginning construction on two new branch offices and launching a
significant renovation on an existing branch.
Year-to-Date Results
Net income for the first six months of 2006 was $25.2 million compared to $33.1 million for the same period of 2005. The decline in net income resulted primarily from the reduction in net interest income as well as the inclusion of the gains mentioned above in the results for the six months of 2005. The provision for credit losses increased $462 thousand in the first six months of 2006 compared to the same period of 2005 largely as the deterioration of a large commercial loan offset some improvements experienced elsewhere in the loan portfolio. Total other expenses declined $2.5 million in the first six months of 2006 when compared to the first six months of 2005. Basic and diluted earnings per share were $0.36 for the first six months of 2006 compared to $0.48 and $0.47, respectively for the first six months of 2005. Return on equity and return on assets for the six months ended June 30, 2006 were 9.67% and 0.85% compared to 12.51% and 1.07%, respectively in the 2005 period.
Net Interest Income
Net interest income for the second quarter of 2006 decreased $2.3 million to $41.3 million from $43.6 million in the second quarter of 2005. Second quarter 2006 net interest margin (net interest income as a percentage of average earning assets on a fully tax equivalent basis) increased three basis points (0.03%) to 3.31%, compared to 3.28% in the corresponding period last year. The improvement in net interest margin was primarily due to a reduction in the average volume of interest bearing liabilities. Due to the relatively flat yield curve First Commonwealth has limited the reinvestment of investment securities proceeds and reduced borrowings. Additionally net interest margin improved in the second quarter of 2006 on lower earning asset levels due to the balance sheet changes that occurred in the fourth quarter of 2005.
Net interest income for the first six months of 2006 was $82.7 million compared to $88.6 million for the first six months of 2005. Net interest margin decreased three basis points (0.03%) to 3.31% in the first six months of 2006 compared to the same period of 2005 on lower earning asset levels.
Other Income
Total other income for the second quarter of 2006 declined $6.0 million to $11.1 million from $17.1 million in the second quarter 2005 largely as a result of the above-mentioned gains on the branch sale, and on the sale of the merchant services business, as well as the absence of income generated from merchant services business during the first six months of 2005.
While year-to-date total other income decreased in 2006 primarily due to the above mentioned gains occurring in 2005, as well as the reduction in merchant discount income, service charges on deposits improved and are expected to continue to improve as fee schedules are increasing beginning September 2006.
Other Expenses
Total other expenses for the second quarter of 2006 decreased $1.9 million to $33.2 million from $35.1 million in the corresponding quarter last year. Salaries and employee benefits declined $629 thousand in the second quarter 2006 from the second quarter 2005 level, reflecting a previously planned reduction of the workforce.
Other operating expenses declined $1.4 million with interchange expense declining $733 thousand in the second quarter of 2006 when compared to the second quarter of 2005 as a result of the sale of the merchant services business. Advertising, promotion and professional fees comprised the majority of the remaining decreases.
Total other expenses decreased $1.7 million during the first six months of 2006 to $68.8 million. While salaries and wages were lower in the 2006 period than those of the first six months of 2005, the decline was offset by the increased cost of certain benefits, mostly occurring in the first three months of 2006. Other operating expenses decreased $2.5 million year-to-date in 2006 when compared to the same period of 2005. Interchange expense totaling $1.4 million during the first six months of 2005 was eliminated in the 2006 period as a result of the above mentioned sale of First Commonwealth's merchant processing business in 2005.
Credit Quality and Provision for Credit Losses
As of June 30, 2006, total nonperforming loans (including loans past due 90 days but still accruing) increased to $30.9 million from the $26.6 million at June 30, 2005. While nonaccrual loans increased $3.6 million since June 30, 2005, the increase in nonaccrual loans resulted primarily from one commercial credit relationship during the first quarter of 2006. The remaining recorded balance is believed to be well secured, including partial government agency guarantees.
Included in the allowance for credit losses at June 30, 2006 was $2.6 million allocated for a large commercial loan that experienced unexpected deterioration. Additionally First Commonwealth reclassified a $5.7 million watch list credit relationship to loans held for sale. This reclassification resulted in a charge to the allowance for credit losses of $1.4 million to adjust the loan to fair value. Net charge-offs reduced the allowance for credit losses by $1.9 million in the second quarter of 2006. Consequently, the provision for credit losses was $4.3 million for the second quarter of 2006 compared to $3.0 million in the second quarter of 2005. Management believes that the allowance for credit losses is adequate to cover probable inherent losses at June 30, 2006.
Year-to-date provision for credit losses increased by $462 thousand from $4.7 million in the 2005 period compared to $5.2 million in the first six months of 2006. Net charge-offs reduced the allowance by $4.3 million in addition to the above mentioned reduction related to the reclassification of the relationship to loans held for sale.
About First Commonwealth Financial Corporation
First Commonwealth Financial Corporation is a $5.9 billion bank holding company headquartered in Indiana, Pennsylvania. It operates 101 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 Financial Advisors, Inc. and First Commonwealth Insurance Agency.
Forward-Looking Statements
This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe First Commonwealth's future plans, strategies and expectations and are based on assumptions and involve risks and uncertainties, many of which are beyond the control of First Commonwealth and which may cause actual results, performance or achievements to differ materially from the results, performance or achievements contemplated by the forward-looking statements. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They 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." Forward-looking statements speak only as of the date they are made. Such risks and uncertainties include among other things:
- Adverse changes in the economy or business conditions, either
nationally or in First Commonwealth's market areas, could increase
credit-related losses and expenses and/or limit growth.
- Increases in defaults by borrowers and other delinquencies could result
in increases in First Commonwealth's provision for losses on loans and
related expenses.
- Fluctuations in interest rates and market prices could reduce net
interest margin and asset valuations and increase expenses.
- Changes in legislative or regulatory requirements applicable to First
Commonwealth and its subsidiaries could increase costs, limit certain
operations and adversely affect results of operations.
- Other risks and uncertainties described in First Commonwealth's reports
filed with the Securities and Exchange Commission, including its most
recent Annual Report on Form 10-K.
FIRST COMMONWEALTH FINANCIAL CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA
(Dollar Amounts in Thousands, except per share data)
For the Quarter Ended For the 6 Months Ended
June 30, June 30,
2006 2005 2006 2005
Interest income $81,693 $77,540 $161,474 $153,177
Interest expense 40,400 33,900 78,734 64,605
Net interest income 41,293 43,640 82,740 88,572
Provision for credit
losses 4,298 3,000 5,206 4,744
Net interest income
after provision for
credit losses 36,995 40,640 77,534 83,828
Net securities gains 19 0 82 485
Trust income 1,481 1,456 2,875 2,781
Service charges on
deposits 4,144 4,009 8,013 7,549
Gain on sale of branch 0 3,090 0 3,090
Gain on sale of merchant
services business 0 1,991 0 1,991
Insurance commissions 595 903 1,314 1,743
Income from bank owned
life insurance 1,414 1,355 2,789 2,676
Merchant discount income 0 882 0 1,721
Card related interchange
income 1,391 1,216 2,689 2,303
Other income 2,022 2,247 3,600 4,250
Total other income 11,066 17,149 21,362 28,589
Salaries and employee
benefits 17,235 17,864 36,592 36,162
Net occupancy expense 2,785 2,715 6,187 5,707
Furniture and equipment
expense 2,915 2,759 5,682 5,629
Data processing expense 820 981 1,615 1,920
Pennsylvania shares tax
expense 1,358 1,237 2,708 2,503
Intangible amortization 566 566 1,131 1,131
Other operating expense 7,543 8,950 14,900 17,413
Total other expenses 33,222 35,072 68,815 70,465
Income before income taxes 14,839 22,717 30,081 41,952
Applicable income taxes 2,613 4,879 4,917 8,895
Net income $12,226 $17,838 $25,164 $33,057
Average shares outstanding 69,653,432 69,129,387 69,562,078 69,237,454
Average shares outstanding
assuming dilution 70,037,609 69,693,693 69,978,210 69,858,133
Per Share Data:
Basic earnings per share $0.18 $0.26 $0.36 $0.48
Diluted earnings per share $0.17 $0.26 $0.36 $0.47
Cash dividends per share $0.170 $0.165 $0.340 $0.330
FIRST COMMONWEALTH FINANCIAL CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA
(Dollar Amounts in Thousands, except per share data)
JUNE 30, DEC 31,
2006 2005
Assets
Cash and due from banks on demand $89,688 $84,555
Interest-bearing bank deposits 905 473
Federal funds sold 0 1,575
Securities available for sale, at
market 1,681,139 1,851,986
Securities held to maturity, at
amortized cost (Market value
$83,400 in 2006 and $89,804
in 2005) 82,720 87,757
Loans held for sale 4,436 1,276
Loans:
Portfolio loans 3,680,070 3,623,102
Unearned income (83) (119)
Allowance for credit losses (39,020) (39,492)
Net loans 3,640,967 3,583,491
Premises and equipment 63,832 60,860
Other real estate owned 1,930 1,655
Goodwill 122,702 122,702
Amortizing intangibles, net 14,120 15,251
Other assets 222,947 214,739
Total assets $5,925,386 $6,026,320
Liabilities
Deposits (all domestic):
Noninterest-bearing $507,021 $491,644
Interest-bearing 3,491,784 3,504,908
Total deposits 3,998,805 3,996,552
Short-term borrowings 654,315 665,665
Other liabilities 38,662 43,314
Subordinated debentures 108,250 108,250
Other long-term debt 613,991 691,494
Total long-term debt 722,241 799,744
Total liabilities 5,414,023 5,505,275
Shareholders' Equity
Common stock $1 par value per share 71,978 71,978
Additional paid-in capital 172,707 173,967
Retained earnings 319,740 318,569
Accumulated other comprehensive
income (loss) (23,515) (9,655)
Treasury stock (16,947) (20,214)
Unearned ESOP shares (12,600) (13,600)
Total shareholders' equity 511,363 521,045
Total liabilities and
shareholders' equity $5,925,386 $6,026,320
Shares issued 71,978,568 71,978,568
Shares outstanding 70,636,584 70,377,916
Treasury shares 1,341,984 1,600,652
Book value per share $7.24 $7.40
Market value per share $12.70 $12.93
FIRST COMMONWEALTH FINANCIAL CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA
(Dollar Amounts in Thousands)
Quarter To Date Average Balance Sheets and
Net Interest Analysis At June 30,
2006
Income/ Yield or
Average Balance Expense Rate (a)
Assets
Interest-earning assets:
Time deposits with banks $813 $10 5.10%
Tax free investment securities 281,696 3,230 7.08%
Taxable investment securities 1,501,812 17,953 4.79%
Federal funds sold 1,098 13 4.81%
Loans, net of unearned income
(b)(c)(d) 3,650,617 60,487 6.85%
Total interest-earning assets 5,436,036 81,693 6.29%
Noninterest-earning assets:
Cash 76,139
Allowance for credit losses (38,685)
Other assets 436,011
Total noninterest-earning
assets 473,465
Total Assets $5,909,501
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits (e) $580,267 $2,463 1.70%
Savings deposits (e) 1,129,949 5,140 1.82%
Time deposits 1,788,520 17,579 3.94%
Short-term borrowings 594,735 6,622 4.47%
Long-term debt 783,921 8,596 4.40%
Total interest-bearing
liabilities 4,877,392 40,400 3.32%
Noninterest-bearing liabilities and
capital:
Noninterest-bearing demand deposits (e) 483,062
Other liabilities 26,941
Shareholders' equity 522,106
Total noninterest-bearing
funding sources 1,032,109
Total Liabilities and
Shareholders' Equity $5,909,501
Net Interest Income and Net Yield on
Interest-Earning Assets $41,293 3.31%
FIRST COMMONWEALTH FINANCIAL CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA
(Dollar Amounts in Thousands)
Quarter To Date Average Balance Sheets and
Net Interest Analysis At June 30,
2005
Income/ Yield or
Average Balance Expense Rate (a)
Assets
Interest-earning assets:
Time deposits with banks $746 $7 3.46%
Tax free investment securities 277,395 3,129 6.96%
Taxable investment securities 1,873,475 19,586 4.19%
Federal funds sold 15,768 120 3.04%
Loans, net of unearned income (b)(c)(d) 3,593,934 54,698 6.30%
Total interest-earning assets 5,761,318 77,540 5.64%
Noninterest-earning assets:
Cash 81,091
Allowance for credit losses (41,419)
Other assets 433,934
Total noninterest-earning
assets 473,606
Total Assets $6,234,924
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits (e) $560,321 $1,150 0.82%
Savings deposits (e) 1,341,923 4,892 1.46%
Time deposits 1,607,808 13,037 3.25%
Short-term borrowings 821,458 5,867 2.86%
Long-term debt 859,624 8,954 4.18%
Total interest-bearing
liabilities 5,191,134 33,900 2.62%
Noninterest-bearing liabilities and
capital:
Noninterest-bearing demand deposits (e) 487,724
Other liabilities 27,856
Shareholders' equity 528,210
Total noninterest-bearing
funding sources 1,043,790
Total Liabilities and
Shareholders' Equity $6,234,924
Net Interest Income and Net Yield on
Interest-Earning Assets $43,640 3.28%
FIRST COMMONWEALTH FINANCIAL CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA
(Dollar Amounts in Thousands)
Year To Date Average Balance Sheets and
Net Interest Analysis At June 30,
2006
Income/ Yield or
Average Balance Expense Rate (a)
Assets
Interest-earning assets:
Time deposits with banks $926 $24 5.22%
Tax free investment securities 281,187 6,449 7.12%
Taxable investment securities 1,537,970 36,141 4.74%
Federal funds sold 2,622 59 4.59%
Loans, net of unearned income (b)(c)(d) 3,650,784 118,801 6.77%
Total interest-earning assets 5,473,489 161,474 6.21%
Noninterest-earning assets:
Cash 76,968
Allowance for credit losses (39,479)
Other assets 431,393
Total noninterest-earning
assets 468,882
Total Assets $5,942,371
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits (e) $569,245 $4,376 1.55%
Savings deposits (e) 1,154,828 10,122 1.77%
Time deposits 1,781,022 34,068 3.86%
Short-term borrowings 612,287 12,986 4.28%
Long-term debt 790,405 17,182 4.38%
Total interest-bearing
liabilities 4,907,787 78,734 3.24%
Noninterest-bearing liabilities and
capital:
Noninterest-bearing demand deposits (e) 481,904
Other liabilities 27,850
Shareholders' equity 524,830
Total noninterest-bearing
funding sources 1,034,584
Total Liabilities and
Shareholders' Equity $5,942,371
Net Interest Income and Net Yield on
Interest-Earning Assets $82,740 3.31%
FIRST COMMONWEALTH FINANCIAL CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA
(Dollar Amounts in Thousands)
Year To Date Average Balance Sheets and
Net Interest Analysis At June 30,
2005
Income/ Yield or
Average Balance Expense Rate (a)
Assets
Interest-earning assets:
Time deposits with banks $854 $14 3.25%
Tax free investment securities 274,188 6,182 7.00%
Taxable investment securities 1,898,552 39,568 4.20%
Federal funds sold 8,255 124 3.02%
Loans, net of unearned income (b)(c)(d) 3,568,436 107,289 6.25%
Total interest-earning assets 5,750,285 153,177 5.61%
Noninterest-earning assets:
Cash 80,050
Allowance for credit losses (41,720)
Other assets 428,366
Total noninterest-earning
assets 466,696
Total Assets $6,216,981
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits (e) $561,231 $2,099 0.75%
Savings deposits (e) 1,301,972 8,538 1.32%
Time deposits 1,594,207 24,944 3.16%
Short-term borrowings 868,478 11,425 2.65%
Long-term debt 849,060 17,599 4.18%
Total interest-bearing
liabilities 5,174,948 64,605 2.52%
Noninterest-bearing liabilities and
capital:
Noninterest-bearing demand deposits (e) 483,214
Other liabilities 26,017
Shareholders' equity 532,802
Total noninterest-bearing
funding sources 1,042,033
Total Liabilities and
Shareholders' Equity $6,216,981
Net Interest Income and Net Yield on
Interest-Earning Assets $88,572 3.34%
(a) Yields on interest-earning assets have been computed on a tax
equivalent basis using the 35% Federal income tax statutory rate.
(b) Average balance includes loans held for sale.
(c) Income on nonaccrual loans is accounted for on the cash basis, and the
loan balances are included in interest-earning assets.
(d) Loan income includes net loan fees.
(e) Average balances do not include reallocations from noninterest-bearing
demand deposits and interest-bearing demand deposits into savings
deposits which were made for regulatory purposes.
FIRST COMMONWEALTH FINANCIAL CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA
(Dollar Amounts in Thousands)
Asset Quality Data At June 30,
2006 2005
Loans on nonaccrual basis $14,785 $11,149
Past due more than 90 days 15,928 15,258
Renegotiated loans 166 179
Total nonperforming loans $30,879 $26,586
Loans outstanding at end of period (a) $3,684,423 $3,601,314
Average loans outstanding (year-to-
date) (a) $3,650,784 $3,568,436
Allowance for credit losses $39,020 $41,404
Nonperforming loans as percent of
total loans 0.84% 0.74%
Net charge-offs (year-to-date) $4,291 $4,403
Reduction in allowance for credit
losses due to transfer of
credit to held for sale $1,387 $0
Net charge-offs as percent of average
loans (annualized) 0.31% 0.25%
Allowance for credit losses as
percent of average loans
outstanding 1.07% 1.16%
Allowance for credit losses as
percent of nonperforming loans 126.36% 155.74%
Other real estate owned $1,930 $1,226
(a) Includes loans held for sale
Profitability Ratios
For the Quarter For the 6 Months
Ended Ended
June 30, June 30,
2006 2005 2006 2005
Return on average assets 0.83% 1.15% 0.85% 1.07%
Return on average equity 9.39% 13.55% 9.67% 12.51%
Efficiency ratio (FTE) (b) 59.36% 54.64% 61.84% 56.90%
Fully tax equivalent adjustment $3,608 $3,404 $7,178 $6,671
(b) Efficiency ratio is "total other expenses" as a percentage of total
revenue.
Total revenue consists of "net interest income, on a fully tax-
equivalent basis," plus "total other income."
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