INDIANA, Pa., Oct. 19 /PRNewswire-FirstCall/ -- First Commonwealth Financial Corporation reported financial results for the third quarter ended September 30, 2006.
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Third Quarter Results
Net income was $15.4 million for the third quarter of 2006 compared to $13.0 million for the third quarter of 2005. Basic and diluted earnings per share were $0.22 for the third quarter of 2006 compared to $0.19 for the comparable period of 2005. Return on average equity was 11.29% and return on average assets was 1.02% for the third quarter of 2006 compared to 9.62% and 0.83% respectively for the third quarter of 2005. The increase in net income in the third quarter 2006 was mainly due to a restructuring charge in 2005 not incurred in 2006 and a gain on the early extinguishment of debt. Net interest margin improved for the three months ended September 30, 2006 compared to the same period in 2005. However, the net interest margin increase was offset by lower levels of interest earning assets which contributed to the decrease in net interest income.
Third quarter of 2006 results did not include a $2.7 million pre-tax restructuring charge taken in the third quarter of 2005 ($1.8 million after tax or $0.03 per diluted share). For the three months ended September 30, 2006, a $1.3 million gain was recognized on an early extinguishment of debt which was offset by lower net interest income of $756 thousand and a higher provision for credit losses of $188 thousand as compared to the same period in 2005.
In the third quarter of 2006, First Commonwealth continued its expansion in the Pittsburgh region through:
- The completion of the merger with Laurel Capital Group, Inc. (Laurel),
headquartered in Allison Park, Pennsylvania on August 28, 2006. Laurel,
with total assets of approximately $314 million, was the parent company
of Laurel Savings Bank which operated eight retail branches in Allegheny
and Butler Counties, Pennsylvania.
- Opening two new branch offices in the Pittsburgh-area market as well as
beginning construction on one new branch office and launching a
significant relocation of an existing branch.
Year-to-Date Results
Net income for the first nine months of 2006 was $40.6 million compared to $46.1 million for the same period of 2005. Basic and diluted earnings per share were $0.58 for the first nine months of 2006 compared to $0.67 and $0.66, respectively for the first nine months of 2005. Return on average equity and return on average assets for the nine months ended September 30, 2006 were 10.23% and 0.91% compared to 11.53% and 0.99%, respectively in the 2005 period.
The decrease in net income was due to a $6.6 million decline in net interest income as well as other non-recurring items that occurred in 2005 including 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 the merchant services business ($1.3 million after tax) coupled with the elimination of merchant discount income of $2.1 million. These decreases were largely offset by reductions in other operating expenses of $2.7 million, the lack of $2.7 million in restructuring charges incurred in 2005, a $1.6 million gain on the early extinguishment of debt and a lower effective tax rate.
The provision for credit losses increased $650 thousand in the first nine months of 2006 compared to the same period of 2005.
Net Interest Income
Net interest income for the third quarter of 2006 decreased $756 thousand to $42.3 million from $43.0 million in the third quarter of 2005. Third quarter 2006 net interest margin (net interest income as a percentage of average earning assets on a fully tax equivalent basis) increased 12 basis points (0.12%) to 3.34%, compared to 3.22% in the corresponding period last year. The improvement in net interest margin was primarily due to an increase in loan yields and a reduction in short-term borrowings and long-term debt offset by an increase in rates on interest bearing liabilities. Due to the relatively flat yield curve First Commonwealth has limited the reinvestment of investment securities proceeds and reduced borrowings. Additionally, liquid assets of approximately $75 million acquired from Laurel were used to reduce short-term borrowings. Interest income for the three month period ended September 30, 2006 increased $6.2 million over the prior year period. However, interest expense increased $7.0 million as increases in interest rates on deposits and borrowings exceeded increases in interest rates earned on loans and investments.
Net interest income for the first nine months of 2006 was $125.0 million compared to $131.6 million for the comparable 2005 period. Net interest margin increased two basis points (0.02%) to 3.32% in the first nine months of 2006 compared to the same period of 2005. Interest income increased $14.5 million for the nine month period ended September 30, 2006 compared to the prior year period. However, interest expense increased $21.1 million as rate increases on interest bearing liabilities were higher than rate increases on interest earning assets. The net interest margin improvement was also offset by lower levels of interest earning assets which contributed to the decrease in net interest income.
Non-Interest Income
Non-interest income for the third quarter of 2006 rose $830 thousand to $12.4 million from $11.6 million in the third quarter of 2005 primarily due to a gain on the extinguishment of debt in the amount of $1.3 million. This gain resulted from a Federal Home Loan Bank advance that was called by the issuer pursuant to the terms of the advance.
Year-to-date non-interest income decreased in 2006 primarily due to the above mentioned gains and reduction in merchant discount income occurring in 2005 in addition to lower insurance commissions and other operating income in 2006. Other operating income decreased $1.1 million due to lower gains recorded on sales of mortgage and student loans and other real estate owned. This decrease was partly offset by the gain on the extinguishment of debt, as well as increases in card related interchange income (which includes income on debit, credit and ATM cards that are issued to consumers and/or businesses) and service charges on deposits. The increase in service charges on deposits was primarily due to increased fee schedules.
Non-Interest Expense
Total non-interest expense for the third quarter of 2006 decreased $2.9 million to $33.4 million from $36.3 million in the corresponding quarter last year primarily due to the above mentioned restructuring charge. Salaries and employee benefits declined $630 thousand in the third quarter 2006 from the third quarter 2005 level, reflecting a previously planned reduction of the workforce which was partially offset by the inclusion of $125 thousand due to the Laurel acquisition.
Total non-interest expense decreased $4.5 million during the first nine months of 2006 to $102.3 million compared to the same period in 2005 largely as a result of the above mentioned restructuring charge. Lower salary expense for the nine month period ended September 30, 2006 was offset by a rise in the cost of employee benefits. Other operating expenses decreased $2.7 million year-to-date in 2006 when compared to the same period of 2005 primarily due to the elimination of plastic card interchange expense totaling $1.5 million and a reduction of $722 thousand in other professional fees. Plastic card interchange expenses are no longer incurred since the merchant services business was sold in 2005.
Credit Quality and Provision for Credit Losses
As of September 30, 2006, total nonperforming loans (including loans past due 90 days but still accruing) increased to $29.2 million from the $25.8 million at September 30, 2005. The increase of $3.7 million in nonaccrual loans since September 30, 2005 resulted primarily from one commercial credit relationship during the first quarter of 2006. Management believes that the allowance for credit losses is at a level deemed sufficient to absorb losses inherent in the loan portfolio at September 30, 2006.
Net charge-offs reduced the allowance for credit losses by $2.0 million in the third quarter of 2006. The provision for credit losses was $3.0 million for the third quarter of 2006 compared to $2.9 million in the third quarter of 2005.
The $8.2 million provision for credit losses for the first nine months of 2006 exceeded net charge-offs by $614 thousand. The provision for credit losses for the nine month period of 2006 exceeded the provision for credit losses for the nine month period of 2005 by $650 thousand.
About First Commonwealth Financial Corporation
First Commonwealth Financial Corporation is a $6.1 billion bank holding company headquartered in Indiana, Pennsylvania. It operates 111 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" 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 For the Nine Months
Ended Ended
September 30, September 30,
2006 2005 2006 2005
Interest income $85,457 $79,248 $246,931 $232,425
Interest expense 43,179 36,214 121,913 100,819
Net interest income 42,278 43,034 125,018 131,606
Provision for credit losses 3,038 2,850 8,244 7,594
Net interest income
after provision for
credit losses 39,240 40,184 116,774 124,012
Net securities gains 5 34 87 519
Trust income 1,482 1,417 4,357 4,198
Service charges on deposits 4,361 4,226 12,374 11,775
Gain on sale of branch 0 0 0 3,090
Gain on sale of merchant
services business 0 0 0 1,991
Gain on extinguishment of
debt 1,283 0 1,553 0
Insurance commissions 801 1,089 2,115 2,832
Income from bank owned
life insurance 1,451 1,359 4,240 4,035
Merchant discount income 0 353 0 2,074
Card related interchange
income 1,398 1,265 4,087 3,568
Other operating income 1,609 1,817 4,939 6,067
Total non-interest
income 12,390 11,560 33,752 40,149
Salaries and employee
benefits 17,690 18,320 54,282 54,482
Net occupancy expense 2,845 2,671 9,032 8,378
Furniture and equipment
expense 2,998 2,844 8,680 8,473
Data processing expense 903 818 2,518 2,738
Pennsylvania shares tax
expense 1,349 1,236 4,057 3,739
Intangible amortization 658 565 1,789 1,696
Restructuring charges 0 2,704 0 2,704
Other operating expense 6,999 7,145 21,899 24,558
Total non-interest
expense 33,442 36,303 102,257 106,768
Income before income taxes 18,188 15,441 48,269 57,393
Applicable income taxes 2,796 2,445 7,713 11,340
Net income $15,392 $12,996 $40,556 $46,053
Average shares outstanding 70,875,018 69,242,056 70,004,534 69,239,005
Average shares outstanding
assuming dilution 71,177,930 69,787,884 70,382,511 69,834,460
Per Share Data:
Basic earnings per share $0.22 $0.19 $0.58 $0.67
Diluted earnings per share $0.22 $0.19 $0.58 $0.66
Cash dividends per share $0.170 $0.165 $0.510 $0.495
FIRST COMMONWEALTH FINANCIAL CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA
(Dollar Amounts in Thousands, except per share data)
September 30, December 31,
2006 2005
Assets
Cash and due from banks $95,151 $84,555
Interest-bearing bank deposits 7,986 473
Federal funds sold 0 1,575
Securities available for sale, at
fair value 1,649,506 1,851,986
Securities held to maturity, at
amortized cost
(Market value $81,574 in 2006 and
$89,804 in 2005) 79,841 87,757
Loans held for sale 0 1,276
Loans:
Portfolio loans 3,818,846 3,623,102
Unearned income (70) (119)
Allowance for credit losses (42,085) (39,492)
Net loans 3,776,691 3,583,491
Premises and equipment 68,518 60,860
Other real estate owned 1,911 1,655
Goodwill 159,889 122,702
Amortizing intangibles, net 18,262 15,251
Other assets 234,784 214,739
Total assets $6,092,539 $6,026,320
Liabilities
Deposits (all domestic):
Noninterest-bearing $538,986 $491,644
Interest-bearing 3,779,956 3,504,908
Total deposits 4,318,942 3,996,552
Short-term borrowings 494,877 665,665
Other liabilities 45,308 43,314
Subordinated debentures 108,250 108,250
Other long-term debt 556,194 691,494
Total long-term debt 664,444 799,744
Total liabilities 5,523,571 5,505,275
Shareholders' Equity
Common stock $1 par value per share 75,100 71,978
Additional paid-in capital 208,621 173,967
Retained earnings 322,583 318,569
Accumulated other comprehensive
loss (9,065) (9,655)
Treasury stock (16,171) (20,214)
Unearned ESOP shares (12,100) (13,600)
Total shareholders' equity 568,968 521,045
Total liabilities and
shareholders' equity $6,092,539 $6,026,320
Shares issued 75,100,431 71,978,568
Shares outstanding 73,819,900 70,377,916
Treasury shares 1,280,531 1,600,652
Book value per share $7.71 $7.40
Market value per share $13.03 $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 September 30,
2006
Average Income/ Yield or
Balance Expense Rate (a)
Assets
Interest-earning assets:
Time deposits with banks $3,684 $15 1.60%
Tax free investment securities 280,926 3,215 6.98%
Taxable investment securities 1,446,629 17,635 4.84%
Federal funds sold 1,243 17 5.35%
Loans, net of unearned income(b)(c)(d) 3,729,622 64,575 7.08%
Total interest-earning assets 5,462,104 85,457 6.48%
Noninterest-earning assets:
Cash 80,791
Allowance for credit losses (40,438)
Other assets 457,991
Total noninterest-earning assets 498,344
Total Assets $5,960,448
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits(e) $596,874 $2,945 1.96%
Savings deposits(e) 1,119,224 5,551 1.97%
Time deposits 1,891,777 19,758 4.14%
Short-term borrowings 606,140 7,338 4.80%
Long-term debt 670,523 7,587 4.49%
Total interest-bearing liabilities 4,884,538 43,179 3.51%
Noninterest-bearing liabilities and capital:
Noninterest-bearing demand deposits(e) 503,611
Other liabilities 31,312
Shareholders' equity 540,987
Total noninterest-bearing funding
sources 1,075,910
Total Liabilities and
Shareholders' Equity $5,960,448
Net Interest Income and Net Yield on
Interest-Earning Assets $42,278 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)
Quarter To Date Average Balance Sheets and
Net Interest Analysis At September 30,
2005
Average Income/ Yield or
Balance Expense Rate (a)
Assets
Interest-earning assets:
Time deposits with banks $706 $8 4.70%
Tax free investment securities 284,993 3,244 6.95%
Taxable investment securities 1,830,229 19,057 4.13%
Federal funds sold 1,456 12 3.41%
Loans, net of unearned income(b)(c)(d) 3,633,852 56,927 6.42%
Total interest-earning assets 5,751,236 79,248 5.72%
Noninterest-earning assets:
Cash 82,298
Allowance for credit losses (42,036)
Other assets 429,738
Total noninterest-earning assets 470,000
Total Assets $6,221,236
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits(e) $571,916 $1,456 1.01%
Savings deposits(e) 1,334,392 5,164 1.54%
Time deposits 1,656,868 14,265 3.42%
Short-term borrowings 768,281 6,437 3.32%
Long-term debt 831,864 8,892 4.24%
Total interest-bearing liabilities 5,163,321 36,214 2.78%
Noninterest-bearing liabilities and capital:
Noninterest-bearing demand deposits(e) 497,754
Other liabilities 24,201
Shareholders' equity 535,960
Total noninterest-bearing
funding sources 1,057,915
Total Liabilities and
Shareholders' Equity $6,221,236
Net Interest Income and Net Yield on
Interest-Earning Assets $43,034 3.22%
(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)
Year To Date Average Balance Sheets and
Net Interest Analysis At September 30,
2006
Average Income/ Yield or
Balance Expense Rate (a)
Assets
Interest-earning assets:
Time deposits with banks $1,856 $39 2.80%
Tax free investment securities 281,099 9,664 7.07%
Taxable investment securities 1,507,189 53,776 4.77%
Federal funds sold 2,157 76 4.73%
Loans, net of unearned income(b)(c)(d) 3,677,352 183,376 6.87%
Total interest-earning assets 5,469,653 246,931 6.30%
Noninterest-earning assets:
Cash 78,257
Allowance for credit losses (39,802)
Other assets 440,355
Total noninterest-earning assets 478,810
Total Assets $5,948,463
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits(e) $578,556 $7,321 1.69%
Savings deposits(e) 1,142,829 15,673 1.83%
Time deposits 1,818,346 53,826 3.96%
Short-term borrowings 610,216 20,324 4.45%
Long-term debt 750,005 24,769 4.42%
Total interest-bearing liabilities 4,899,952 121,913 3.33%
Noninterest-bearing liabilities and capital:
Noninterest-bearing demand deposits(e) 489,219
Other liabilities 29,018
Shareholders' equity 530,274
Total noninterest-bearing funding
sources 1,048,511
Total Liabilities and
Shareholders' Equity $5,948,463
Net Interest Income and Net Yield on
Interest-Earning Assets $125,018 3.32%
(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)
Year To Date Average Balance Sheets and
Net Interest Analysis At September 30,
2005
Average Income/ Yield or
Balance Expense Rate (a)
Assets
Interest-earning assets:
Time deposits with banks $804 $22 3.67%
Tax free investment securities 277,829 9,426 6.98%
Taxable investment securities 1,875,527 58,625 4.18%
Federal funds sold 5,964 136 3.05%
Loans, net of unearned income(b)(c)(d) 3,590,481 164,216 6.31%
Total interest-earning assets 5,750,605 232,425 5.64%
Noninterest-earning assets:
Cash 80,807
Allowance for credit losses (41,826)
Other assets 428,829
Total noninterest-earning assets 467,810
Total Assets $6,218,415
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits(e) $564,832 $3,554 0.84%
Savings deposits(e) 1,312,897 13,703 1.40%
Time deposits 1,615,324 39,209 3.25%
Short-term borrowings 834,712 17,862 2.86%
Long-term debt 843,265 26,491 4.20%
Total interest-bearing liabilities 5,171,030 100,819 2.61%
Noninterest-bearing liabilities and capital:
Noninterest-bearing demand deposits(e) 488,113
Other liabilities 25,406
Shareholders' equity 533,866
Total noninterest-bearing funding
sources 1,047,385
Total Liabilities and
Shareholders' Equity $6,218,415
Net Interest Income and Net Yield on
Interest-Earning Assets $131,606 3.30%
(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 September 30,
2006 2005
Loans on nonaccrual basis $14,707 $11,039
Past due more than 90 days 14,296 14,608
Renegotiated loans 163 176
Total nonperforming loans $29,166 $25,823
Loans outstanding at end of
period(a) $3,818,776 $3,613,137
Average loans outstanding
(year-to-date)(a) $3,677,352 $3,590,481
Allowance for credit losses $42,085 $41,537
Nonperforming loans as a percent
of total loans 0.76% 0.71%
Net charge-offs (year-to-date) $7,630 $7,120
Net charge-offs as a percent of
average loans (annualized) 0.28% 0.27%
Allowance for credit losses as a
percent of average loans
outstanding 1.14% 1.16%
Allowance for credit losses as a
percent of nonperforming loans 144.29% 160.85%
Other real estate owned $1,911 $1,520
(a) Includes loans held for sale.
Profitability Ratios
For the Quarter For the Nine
Ended Months Ended
September 30, September 30,
2006 2005 2006 2005
Return on average assets 1.02% 0.83% 0.91% 0.99%
Return on average equity 11.29% 9.62% 10.23% 11.53%
Efficiency ratio (FTE)(b) 57.27% 62.35% 60.27% 58.64%
Fully tax equivalent adjustment $3,724 $3,634 $10,902 $10,305
(b) Efficiency ratio is "total non-interest expense" as a percentage of
total revenue. Total revenue consists of "net interest income, on a
fully tax-equivalent basis," plus "total non-interest income."
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