First Commonwealth Announces Second Quarter 2020 Earnings; Declares Quarterly Dividend

INDIANA, Pa., July 28, 2020 (GLOBE NEWSWIRE) -- First Commonwealth Financial Corporation (NYSE: FCF) today announced financial results for the second quarter of 2020.

Financial Summary

(1) Core operating results are a non-GAAP measure used by management to measure performance in operating the business that management believes enhances investors' ability to better understand the underlying business performance and trends related to core business activities. A full reconciliation of non-GAAP financial measures can be found at the end of the financial statements which accompany this release.
(2) Reserve build represents the amount by which the provision for credit losses exceeds net charge-offs, while reserve release represents the amount by which net charge-offs exceed the provision for credit losses.

Second Quarter 2020 Highlights

Financial results

• Net income of $23.9 million and diluted earnings per share of $0.24, an increase of $19.1 million or $0.19 per share from the previous quarter
• Provision for loan losses of $6.9 million decreased $24.1 million from the previous quarter
• Pre-tax pre-provision net revenue (PPNR)(1) was $36.1 million
• Net interest income of $67.0 million decreased $1.1 million from the previous quarter due to a 36 basis point decline in the net interest margin, partially offset by a $678.6 million increase in average interest-earning assets
• Noninterest income of $21.8 million increased $2.5 million from the previous quarter on improved mortgage gain on sale
• Noninterest expense of $52.8 million increased $2.5 million from the previous quarter due to a $3.4 million increase in expense for reserves for unfunded loan commitments
• Total period-end loans increased $612.8 million from the previous quarter and includes $570.9 million in loans made through the SBA Paycheck Protection Program (“PPP”)
  -- Excluding PPP loans, total period-end loans grew $41.9 million, or 2.7% (annualized) from the previous quarter
• Average deposits increased $758.2 million (or 44.8% annualized) and period-end deposits increased $859.1 million (or 49.6% annualized) from the previous quarter due to deposit growth associated with PPP loan funds and consumer stimulus checks
  -- Noninterest-bearing deposits increased by $536.8 million (or 122.6% annualized) and comprised 29.4% of total deposits at June 30, 2020

Asset quality

• Nonaccrual loans of $48.6 million decreased $3.1 million from the previous quarter
• Net charge-offs on loans totaled $4.5 million, $2.9 million of which represents the charge off of specific reserves provided for in prior periods
• Reserve build(2) of $29.8 million or 0.43% of total loans (excluding PPP) on a year-to-date basis, bringing reserves to total loans (adjusted for PPP) to 1.28%, and reserves to total originated loans (adjusted for PPP) to 1.34%
• The Company continues to defer its adoption of CECL in accordance with relief provided under the U.S. Coronavirus Aid, Relief, and Economic Security (“CARES”) Act

Strong liquidity and capital positions

• Total available liquidity of $3.8 billion
• Bank-level Tier 1 Capital ratio of 11.3%, which represents $223.4 million in excess capital above the regulatory “well capitalized” requirement of 8.0%
• The Company temporarily suspended share repurchases in March 2020

Operational Update

• In response to the current operating environment and evolving customer preferences, the Company is implementing a profitability initiative termed “Project THRIVE” with a goal of growing our business, maintaining adequate capital, protecting against further NIM compression and reducing operating expenses. A targeted 20% reduction in retail locations will occur prior to December 31, 2020
• During the second quarter of 2020, the Company processed 4,920 PPP loan applications representing $606 million approved and $588 million funded to support our business customers; PPP balances totaled $571 million as of June 30, 2020
• All of our community office drive-ups are open and our lobbies are available by appointment
• Recent recognitions include:
  -- 2020 Forbes World’s Best Banks
  -- Consumer Federation of America Designation of Savings Excellence
  -- FDIC Impactful Money Smart for Adults Partnership

“Our performance in the second quarter is a reminder of the importance we play as a financial services organization and partner in the communities we serve,” stated T. Michael Price, President and Chief Executive Officer, “We assisted nearly 5,000 businesses secure over $600 million in PPP loans, which impacted approximately 80,000 jobs. At the same time, we originated a record $203 million in consumer mortgages in the quarter that helped roughly 800 customers finance a home.”

Price continued, “In light of the rapidly changing operating environment and uncertain economic outlook, we have implemented Project THRIVE with the express goal of emerging on the other side of this crisis stronger than ever. First Commonwealth has a proven track record of executing on its initiatives and I am confident that Project THRIVE will benefit all of our long-term stakeholders.”

Earnings

Net income for the second quarter of 2020 was $23.9 million, or $0.24 per share, compared to $4.7 million, or $0.05 per share for the first quarter of 2020, and $27.3 million, or $0.28 per share in the second quarter of 2019.

Net income for the first six months of 2020 was $28.6 million, as compared to $51.9 million for the same period in 2019.

Net Interest Income and Net Interest Margin

Net interest income (FTE) decreased $1.1 million from the previous quarter due to loan repricing and lower replacement yields on new loans, driven by the impact of the lower interest rate environment.

The net interest margin for the second quarter of 2020 was 3.29%, a decrease of 36 basis points from the previous quarter and a decrease of 46 basis points from the second quarter of 2019. The decrease from the previous quarter was due primarily to a 57 basis point decrease in the yield on interest-earning assets, partially offset by a 26 basis point decrease in the cost of interest bearing liabilities.

Total average interest-earning assets increased $678.6 million from the previous quarter due to a $116.3 million increase in average traditional loans along with $405.7 million in average PPP loans.

Total average deposits grew $758.2 million in the second quarter of 2020 as compared to the previous quarter. Period-end deposits grew $859.1 million in the second quarter of 2020 as compared to the first quarter of 2020. Period-end growth was driven by $536.8 million of growth in noninterest-bearing demand deposits and $397.2 million of growth in savings deposits, partially offset by a $76.4 million decrease in time deposits.

Asset Quality

On March 27, 2020, the CARES Act was signed into law, which provides banking organizations with optional, temporary relief from adoption of Accounting Standards Update No. 2016-13, “Financial Instruments—Credit Losses,” Topic 326, “Measurement of Credit Losses on Financial Instruments” (“CECL”). Due to the extraordinary economic condition and the uncertainty of economic forecasts and resulting volatility in these forecasts, the Company elected to defer its adoption of CECL and has, therefore, calculated reserves for loan losses under the incurred loss method.

Provision expense in the second quarter totaled $6.9 million. Reserves for loan losses totaled $81.4 million in the second quarter of 2020, an increase of $2.4 million from the previous quarter. The increase from the previous quarter was primarily due to an increase of $5.5 million in qualitative reserves partially offset by a $2.9 million decrease in specific reserves primarily as the result of the resolution of three commercial credits reserved for in previous quarters. These qualitative reserves are intended to reflect the risks of continued weak economic conditions on our loan portfolio, but also loss estimates identified in several loan portfolios deemed to be at risk from the COVID-19 pandemic (e.g., retail and hospitality) and the inherent risk presented by loan forbearances as of June 30, 2020.

At June 30, 2020, nonperforming loans totaled $56.0 million, a decrease of $3.1 million from the previous quarter. The decrease in nonperforming loans was primarily due to the resolution of the three aforementioned commercial credits with balances totaling $8.0 million, partially offset by a $5.5 million commercial credit placed into nonaccrual.

Nonperforming loans as a percentage of total loans (excluding PPP) were 0.88%, 0.93% and 0.59% for the periods ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively.

For the originated loan portfolio at June 30, 2020, the general allowance for credit losses to total originated loans (excluding PPP) was 1.23%, compared to 1.16% at March 31, 2020 and 0.88% at June 30, 2019.

During the second quarter of 2020, net charge-offs were $4.5 million, compared to $3.5 million in the prior quarter and $1.4 million in the second quarter of 2019. Net charge-offs were 0.28%, 0.23% and 0.10% of average loans (excluding PPP, annualized) for the periods ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively.

Noninterest Income and Noninterest Expense

Noninterest income totaled $21.8 million for the second quarter of 2020, as compared to $19.3 million for the first quarter of 2020 and $21.9 million for the second quarter of 2019 (excluding net securities gains). There were no material securities gains during the current or comparable quarters.

The $2.5 million increase from the previous quarter was primarily due to a $1.7 million increase in gain on sale of mortgage loans and a $1.5 million quarter over quarter increase in swap-related derivative mark-to-market income (due to a $1.7 million negative mark last quarter), along with a $0.6 million increase in interchange income. These results were partially offset by a $1.5 million decrease in services charges on deposit accounts driven by lower overdraft fees being incurred by customers.

Noninterest expense totaled $52.8 million for the second quarter of 2020, as compared to $50.3 million for the first quarter of 2020 and $52.2 million for the second quarter of 2019. The $2.5 million increase from the previous quarter was primarily the result of a $3.4 million increase in unfunded commitment reserves due to a $2.5 million release of unfunded commitment reserves in the previous quarter as compared to $0.9 million in expense related to unfunded commitment reserves this quarter. This increase was partially offset by a $1.2 million decrease in salaries and benefits and a $0.6 million decrease in occupancy expense.

The core efficiency ratio was 57.20% during the second quarter of 2020 as compared to 58.21% in the previous quarter and 56.80% in the second quarter of 2019.

Full time equivalent staff was 1,465 as June 30, 2020, 1,510 at March 31, 2020, and 1,438 at June 30, 2019. The decrease from the prior quarter is the result of a company-wide hiring freeze implemented at the end of the first quarter of 2020.

Dividends and Capital

First Commonwealth Financial Corporation declared a common stock quarterly dividend of $0.11 per share, which is payable on August 21, 2020 to shareholders of record as of August 7, 2020. This dividend represents a 5.7% projected annual yield utilizing the July 27, 2020 closing market price of $7.77.

First Commonwealth’s capital ratios for Total, Tier I, Leverage and Common Equity Tier I at June 30, 2020 were 14.4%, 11.8%, 9.3%, and 10.7%, respectively. First Commonwealth’s current capital levels exceed the fully phased-in Basel III capital requirements issued by U.S. bank regulators.

Conference Call

First Commonwealth will host a quarterly conference call to discuss its financial results for the second quarter 2020 on Wednesday, July 29, 2020 at 2:00 PM (ET). The call can be accessed by dialing (toll free) 1-844-792-3645 or through the company’s web page, http://www.fcbanking.com/InvestorRelations. A replay of the call will be available approximately one hour following the conclusion of the conference by dialing 1-877-344-7529 and entering the access code # 10145939. A link to the webcast replay will also be accessible on the company’s web page for 30 days.

About First Commonwealth Financial Corporation

First Commonwealth Financial Corporation (NYSE: FCF), headquartered in Indiana, Pennsylvania, is a financial services company with 147 community banking offices in 28 counties throughout western and central Pennsylvania and throughout Ohio, as well as business banking operations in Pittsburgh, Pennsylvania, and Canton, Cleveland, Columbus and Cincinnati, Ohio. The company also operates mortgage offices in Wexford, Pennsylvania, as well as Hudson and Dayton and Lewis Center, 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. For more information about First Commonwealth or to open an account today, please visit www.fcbanking.com.

Forward-Looking Statements

Certain statements contained in this release that are not historical facts may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in our future filings with the Securities and Exchange Commission, in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact and constitute “forward-looking statements” as well. These statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of words such as “may,” “will,” “should,” “could,” “would,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “estimate” or words of similar meaning. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including uncertainties regarding the impact of the COVID-19 pandemic, and could be affected by many factors, including, but not limited to: (1) the length and extent of the economic contraction as a result of the COVID-19 pandemic and the impact of such contraction 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 or its customers 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 this report and in the other reports that we file with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K. Further, statements about the potential effects of the COVID-19 pandemic on our business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, clients, third parties and us.

In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements in this release. We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Media Relations:
Jonathan E. Longwill
Vice President / Communications and Media Relations
Phone: 724-463-6806
E-mail: JLongwill@fcbanking.com

Investor Relations:
Ryan M. Thomas
Vice President / Finance and Investor Relations
Phone: 724-463-1690
E-mail: RThomas1@fcbanking.com