Exhibit 99.1
| First Commonwealth |
| Financial Corporation |
| 22 N. 6th Street |
| Indiana, Pennsylvania 15701 |
| 724-349-7220 Phone |
Joseph E. O’Dell | 724-349-6427 Fax |
President and Chief Executive Officer | www.fcbanking.com |
November 9, 2006
Dear Shareholder:
First Commonwealth Financial Corporation (NYSE:FCF) reported net income of $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 that 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 that 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.
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 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.
During the third quarter First Commonwealth completed its acquisition of Laurel Capital Group Inc., headquartered in Allison Park, Pennsylvania. Laurel, with total assets of approximately $314 million, operated eight retail branches in Allegheny and Butler counties in Pennsylvania. These branches have already been fully converted to First Commonwealth offices bringing our total number of community offices to 110 with over half of these offices located in our designated higher growth opportunity markets.
I would like to welcome the former Laurel employees and customers to the First Commonwealth family. I also welcome the new First Commonwealth shareholders from Laurel and invite them to participate in our exceptional Dividend Reinvestment Plan that features a 10% discount on shares purchased with reinvested dividends. More information on this plan can be obtained by visiting our website at www.fcbanking.com.
As always, I appreciate the efforts of our dedicated employees. I also appreciate the continued support and confidence of our shareholders.
Sincerely,
/s/ Joseph E. O’Dell |
|
The following tables provide you with consolidated selected financial data of First Commonwealth at and for the quarter ended September 30, 2006. You should read this information along with the consolidated financial statements of First Commonwealth and the accompanying notes included in its annual report on Form 10-K for the year ended December 31, 2005, and its quarterly report on Form 10-Q for the quarter ended September 30, 2006, which are available to the public over the Internet at the Corporation’s website at http://www.fcbanking.com or from the company upon request to the attention of the Corporate Secretary.
FIRST COMMONWEALTH FINANCIAL CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA
(Dollar Amounts in Thousands, except per share data)
|
| For the Quarter Ended |
| For the Nine Months Ended |
| ||||||||
|
|
|
| ||||||||||
|
| 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 |
|
|
| September 30, |
| December 31, |
| ||
|
|
|
| ||||
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 |
|
|
|
|
| ||||
FIRST COMMONWEALTH FINANCIAL CORPORATION
CONSOLIDATED SELECTED FINANCIAL DATA
(Dollar Amounts in Thousands, except per share data)
|
| September 30, |
| December 31, |
| ||
|
|
|
| ||||
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 |
|
|
|
|
|
|
|
|
|
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 Ended |
| For the Nine Months Ended |
| ||||||||
|
|
|
| ||||||||||
|
| 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.” |