First Commonwealth Announces First Quarter 2008 Financial Results

INDIANA, Pa., April 17 /PRNewswire-FirstCall/ -- First Commonwealth Financial Corporation , the holding company for First Commonwealth Bank, announced today the financial results for the first quarter of 2008.

(Logo: http://www.newscom.com/cgi-bin/prnh/20030416/FIRSTLOGO ) First Quarter Results

First Commonwealth reported first quarter 2008 net income of $11.1 million or $0.15 per diluted share compared to $10.9 million or $0.15 per diluted share in the same period last year and $11.6 million or $0.16 per diluted share for the fourth quarter of 2007. Net income increased $226 thousand or 2.1% from the comparable period last year primarily due to an increase in non- interest income, partly offset by a decline in net interest income, a larger provision for credit losses and higher non-interest expense. Compared to the fourth quarter of 2007, net income decreased $527 thousand, or 4.5%, mainly due to higher non-interest expense and provision for credit losses partly offset by increased net interest income and a lower tax provision. First quarter return on average equity and average assets increased to 7.73% and 0.75%, respectively, compared to 7.64% and 0.74% for the prior year period and 8.08% and 0.80% for the fourth quarter of 2007.

Developments during the first quarter include: -- Total loan and significant commercial loan growth year over year. -- Significant non-interest income growth year over year. -- A new location opened in the Pittsburgh market (Squirrel Hill). -- Announced the hiring of J. Eric Renner as Executive Vice President/ Consumer Services for First Commonwealth Bank.

"I am excited about the positive financial results First Commonwealth experienced this quarter," said John J. Dolan, President and CEO. "The effort expended in 2007 to align the structure of our organization and to re-commit the company to being responsive to our clients' needs is beginning to produce favorable results. Our client-centric focus of becoming 'First Choice' in our marketplace has resulted in increased revenue growth."

Net Interest Income and Margin

Net interest income was up $926 thousand, or 2.3%, from the fourth quarter of 2007 and has increased now for the last three quarters. This improvement in net interest income is primarily due to increased levels of interest earning assets during these periods. We experienced strong loan growth in the last two quarters, mainly in commercial loans. Total loans increased $189.7 million, or 5.1%, year over year and increased $195.4 million, or 5.3%, compared to the prior quarter. Investment securities increased $54.4 million, or 3.3%, year over year and increased $44.0 million, or 2.7%, compared to the prior quarter.

The Federal Reserve Bank cut short-term interest rates 100 basis points in 2007 and 200 basis points in the first quarter of 2008. Despite these reductions, net interest margin on a tax equivalent basis for the first quarter of 2008 only decreased eight basis points, or 0.08%, to 3.28%, compared with 3.36% in the corresponding period last year and declined four basis points, or 0.04%, from the fourth quarter of 2007. Our yield on total interest-earning assets declined faster than the cost of our interest-bearing liabilities in the year-to-year comparison. For the first quarter of 2008, the ratio of noninterest-bearing funding sources as a percentage of interest- earning assets decreased over the fourth quarter of 2007 providing additional pressure on the net interest margin.

Average interest-earning assets were $56.6 million higher in the first quarter of 2008 compared to the first quarter of 2007 driven by an increase in average loans of $98.1 million, partly offset by a decrease in average investment securities of $39.6 million. Average interest-earning assets increased $244.1 million, or 4.7%, over the fourth quarter of 2007 due to an average increase of $169.6 million in loans and $81.2 million in investment securities. Average borrowings increased $23.4 million in the first quarter of 2008 compared to the same period in 2007 and increased $288.5 million compared to the fourth quarter of 2007 primarily to fund growth in interest-earning assets.

Non-Interest Income

Non-interest income for the first quarter of 2008 increased $2.0 million, or 17.8%, from the first quarter of 2007 and increased $626 thousand, or 4.9%, from the fourth quarter of 2007, primarily due to higher insurance commissions and increases in other income. Higher sales, additional producers and an enhanced calling program resulted in increased insurance commissions. Other income increased primarily due to increased letter of credit fees and swap fees.

Non-Interest Expense

Non-interest expense for the first quarter of 2008 increased $1.1 million, or 2.9%, compared to the first quarter of 2007 and increased $2.0 million, or 5.4%, from the fourth quarter of 2007.

During the first quarter of 2008, salaries and employee benefits remained flat compared to the first quarter of 2007. The first quarter of 2007 included expenses of $746 thousand relating to a separation agreement with the company's former CEO. Net occupancy expense increased $554 thousand, or 16.5%, due to branch expansion and higher building repairs and maintenance costs. Advertising expense decreased $467 thousand, or 42.6%, due to increased branding efforts in the first quarter of 2007 while other expenses increased $733 thousand, or 10.4%, primarily due to increased contributions, professional fees, collection fees and operational losses.

When compared to the fourth quarter of 2007, salaries and employee benefits increased $1.5 million, or 7.8%, due to annual merit salary increases and lower employer-related costs in the fourth quarter due to the yearly cap on payroll taxes, principally unemployment insurance. The remainder of the increase in non-interest expense was the result of the changes mentioned above.

Income Tax

Income tax expense increased $350 thousand for the first quarter of 2008 compared to the same period in 2007. First Commonwealth's effective tax rate was 11.1% in the first quarter of 2008 compared to 8.7% in the same period in 2007 and 15.4% in the fourth quarter of 2007. Nontaxable income and tax credits had a smaller impact on the effective tax rate in the first quarter of 2008 due to a $576 thousand increase in pretax income compared to the same period last year. The decrease in the effective tax rate from the fourth quarter of 2007 was the result of nontaxable income and tax credits having a larger impact in the first quarter of 2008 in addition to a $336 thousand charge in the fourth quarter of 2007 to record the tax effect of purchase accounting adjustments related to prior acquisitions.

Credit Quality and Provision for Credit Losses

First Commonwealth is not a participant or underwriter in the sub-prime mortgage loan or collateralized debt marketplace and therefore does not have any exposure to risks associated with these activities. All mortgage backed securities in First Commonwealth's portfolio are AAA rated and backed by U.S. Government agencies.

For the quarter ending March 31, 2008, non-accrual loans decreased approximately $5.3 million from the fourth quarter of 2007 due to the successful workout of commercial credits including the $4.3 million commercial credit relationship that was placed on non-accrual in the fourth quarter of 2007. Non-accrual loans increased $36.1 million to $48.8 million at March 31, 2008 compared to $12.7 million at March 31, 2007, mainly due to a $30.0 million commercial credit relationship placed on non-accrual during the second quarter of 2007. This credit relationship has been monitored since the second quarter of 2006 when management disclosed that this credit had experienced deterioration. This credit is collateralized by real estate and equipment and a reserve has been allocated, primarily during 2006, to cover the expected losses.

As previously disclosed, First Commonwealth purchased $7.0 million in loans from Equipment Finance, LLC ("EFI"), a division of Sterling Financial Corporation of Lancaster, Pennsylvania ("Sterling") during 2006. Sterling subsequently disclosed an investigation, which is still ongoing, into financial irregularities related to certain financing contracts at EFI. Loans in this portfolio are collateralized by equipment and reserves were allocated in the second quarter of 2007 to cover the expected losses. At March 31, 2008, the remaining balance in the portfolio was $4.1 million, of which $3.0 million was classified as non-accrual. No EFI loans were reclassified by First Commonwealth as non-accrual during the first quarter of 2008. PNC Financial Services Group, Inc. finalized the acquisition of Sterling on April 4, 2008.

Loans past due in excess of 90 days and still accruing increased $6.4 million to $20.1 million compared to March 31, 2007. The majority of this increase is related to one commercial loan that management believes is adequately collateralized by real estate. The provision for credit losses for the first quarter of 2008 increased $200 thousand compared to the first quarter of 2007. While First Commonwealth experienced payoffs on loans that carried specific allocated reserves that resulted in an improvement in credit quality, additional provisions were warranted due to the growth in the commercial portfolio.

Management believes that the allowance for credit losses is at a level deemed sufficient to absorb losses inherent in the loan portfolio at March 31, 2008.

About First Commonwealth Financial Corporation

First Commonwealth Financial Corporation is a $6.1 billion bank holding company headquartered in Indiana, Pennsylvania. It operates 112 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.

Earnings Conference Call to be Held Thursday, April 17, 2008

An earnings conference call will be held on Thursday, April 17, 2008 at 2:00 p.m. local time to discuss financial results for the quarter ended March 31, 2008. The call will be hosted by John J. Dolan, President and Chief Executive Officer. He will be joined by Edward J. Lipkus, Executive Vice President and Chief Financial Officer and T. Michael Price, President of First Commonwealth Bank.

To listen to the conference call, go to First Commonwealth's webpage http://www.fcbanking.com/, click on "Investor Relations" and then on the "Webcast" link and follow the instructions. After the live presentation, the webcast will be archived on this website for 30 days.

Forward-Looking Statements

This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the adequacy of First Commonwealth's allowance for credit losses, improvements in commercial loan balances and quality and the impact of recent organizational changes and strategic initiatives on future results. 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, which could increase credit-related losses and expenses and/or limit growth; -- increases in defaults by borrowers and other delinquencies, which could result in an increased provision for credit losses on loans and related expenses; -- fluctuations in interest rates and market prices, which could reduce net interest margin and asset valuations and increase expenses; -- changes in legislative or regulatory requirements applicable to First Commonwealth and its subsidiaries, which could increase costs, limit certain operations and adversely affect results of operations; -- the inability to successfully execute First Commonwealth's strategic growth initiatives, which could limit future revenue and earnings growth; and -- 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 (dollars in thousands, except share data) For the Quarter Ended March December September June March 31, 31, 30, 30, 31, 2008 2007 2007 2007 2007 Interest Income Interest and fees on loans $62,067 $63,488 $63,737 $62,813 $63,913 Interest and dividends on investments: Taxable interest 15,531 14,967 14,259 14,889 16,145 Interest exempt from Federal income taxes 3,595 3,510 3,424 3,427 3,371 Dividends 609 752 753 720 733 Interest on Federal funds sold 0 74 57 2 24 Interest on bank deposits 5 8 8 10 11 Total interest income 81,807 82,799 82,238 81,861 84,197 Interest Expense Interest on deposits 31,033 34,527 33,786 32,872 31,585 Interest on short-term borrowings 3,705 1,819 1,977 2,700 4,946 Interest on subordinated debentures 1,911 2,156 2,130 2,123 2,117 Interest on other long-term debt 4,074 4,139 4,211 4,327 4,298 Total interest on long-term debt 5,985 6,295 6,341 6,450 6,415 Total interest expense 40,723 42,641 42,104 42,022 42,946 Net Interest Income 41,084 40,158 40,134 39,839 41,251 Provision for credit losses 3,179 2,352 2,296 2,415 2,979 Net Interest Income after provision for credit losses 37,905 37,806 37,838 37,424 38,272 Non-Interest Income Net securities gains 501 403 16 150 605 Trust income 1,532 1,428 1,517 1,518 1,418 Service charges on deposit accounts 4,425 4,690 4,609 4,517 4,165 Insurance commissions 1,277 909 1,064 857 730 Income from bank owned life insurance 1,487 1,557 1,534 1,520 1,490 Card related interchange income 1,753 1,791 1,654 1,634 1,485 Other income 2,481 2,052 1,819 2,205 1,533 Total non- interest income 13,456 12,830 12,213 12,401 11,426 Non-Interest Expense Salaries and employee benefits 20,330 18,859 18,401 18,588 20,284 Net occupancy expense 3,907 3,484 3,475 3,398 3,353 Furniture and equipment expense 3,078 3,126 3,243 2,914 2,717 Advertising expense 628 957 475 340 1,095 Data processing expense 1,051 987 942 925 954 Pennsylvania shares tax expense 1,271 1,446 1,439 1,415 1,469 Intangible amortization 831 831 857 870 870 Other expenses 7,760 7,185 7,648 8,433 7,027 Total non- interest expense 38,856 36,875 36,480 36,883 37,769 Income before income taxes 12,505 13,761 13,571 12,942 11,929 Applicable income taxes 1,384 2,113 1,352 1,454 1,034 Net Income $11,121 $11,648 $12,219 $11,488 $10,895 Average Shares Outstanding 72,452,875 72,391,577 72,589,329 73,180,532 73,113,823 Average Shares Outstanding Assuming Dilution 72,559,668 72,513,962 72,705,753 73,314,997 73,370,678 Per Share Data: Basic Earnings Per Share $0.15 $0.16 $0.17 $0.16 $0.15 Diluted Earnings Per Share $0.15 $0.16 $0.17 $0.16 $0.15 Cash Dividends Declared per Common Share $0.17 $0.17 $0.17 $0.17 $0.17 FIRST COMMONWEALTH FINANCIAL CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (dollars in thousands, except share data) March December September June March 31, 31, 30, 30, 31, 2008 2007 2007 2007 2007 Assets Cash and due from banks $92,554 $100,791 $86,499 $92,407 $84,137 Interest-bearing bank deposits 219 1,719 1,060 1,310 463 Securities available for sale, at market value 1,623,788 1,574,217 1,460,909 1,451,019 1,557,247 Securities held to maturity, at amortized cost, (Market value $67,451 at March 31, 2008 and $72,928 at December 31, 2007) 65,935 71,497 73,024 76,366 78,092 Loans: Portfolio loans 3,893,202 3,697,843 3,660,153 3,674,725 3,703,545 Unearned income (19) (24) (30) (37) (47) Allowance for credit losses (41,613) (42,396) (43,210) (43,968) (43,379) Net loans 3,851,570 3,655,423 3,616,913 3,630,720 3,660,119 Premises and equipment, net 69,191 69,487 70,133 70,567 70,916 Other real estate owned 3,280 2,172 1,803 1,241 1,663 Goodwill 159,956 159,956 159,956 160,755 160,759 Amortizing intangibles, net 12,609 13,441 14,272 15,129 15,999 Other assets 239,877 234,915 237,527 235,674 231,817 Total assets $6,118,979 $5,883,618 $5,722,096 $5,735,188 $5,861,212 Liabilities Deposits (all domestic): Noninterest- bearing $542,331 $523,203 $522,810 $530,063 $525,387 Interest- bearing 3,778,337 3,824,016 3,811,133 3,877,708 3,830,000 Total deposits 4,320,668 4,347,219 4,333,943 4,407,771 4,355,387 Short-term borrowings 642,869 354,201 237,734 147,346 309,895 Other liabilities 48,259 65,464 44,156 43,807 45,318 Subordinated debentures 105,750 105,750 108,250 108,250 108,250 Other long-term debt 426,955 442,196 435,781 467,856 470,032 Total long-term debt 532,705 547,946 544,031 576,106 578,282 Total liabilities 5,544,501 5,314,830 5,159,864 5,175,030 5,288,882 Shareholders' Equity Preferred stock, $1 par value per share, 3,000,000 shares authorized, none issued 0 0 0 0 0 Common stock, $1 par value per share, 100,000,000 shares authorized; 75,100,431 shares issued and 73,161,726 shares outstanding at March 31, 2008; 75,100,431 shares issued and 73,128,612 shares outstanding at December 31, 2007 75,100 75,100 75,100 75,100 75,100 Additional paid-in capital 206,498 206,889 207,310 207,553 207,958 Retained earnings 317,058 319,246 319,472 319,677 320,734 Accumulated other comprehensive income (loss), net 7,215 (147) (6,736) (15,417) (6,224) Treasury stock (1,938,705 and 1,971,819 shares at March 31, 2008 and December 31, 2007, respectively, at cost) (22,293) (22,700) (22,814) (16,155) (14,138) Unearned ESOP shares (9,100) (9,600) (10,100) (10,600) (11,100) Total shareholders' equity 574,478 568,788 562,232 560,158 572,330 Total liabilities and shareholders' equity $6,118,979 $5,883,618 $5,722,096 $5,735,188 $5,861,212 Book value per share $7.85 $7.78 $7.69 $7.59 $7.74 Market value per share $11.59 $10.65 $11.06 $10.92 $11.75 FIRST COMMONWEALTH FINANCIAL CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA Loans by Categories (dollars in thousands) March December September June March 31, 31, 30, 30, 31, 2008 2007 2007 2007 2007 Commercial, financial, agricultural and other $1,052,971 $926,904 $901,679 $866,590 $854,843 Real estate - construction 241,114 207,708 143,680 123,844 101,719 Real estate - residential 1,230,928 1,237,986 1,268,313 1,288,089 1,312,389 Real estate - commercial 909,613 861,077 865,389 899,669 914,389 Loans to individuals 458,576 464,106 480,956 496,228 519,711 Leases, net of unearned income 0 62 136 305 494 Gross loans and leases 3,893,202 3,697,843 3,660,153 3,674,725 3,703,545 Unearned income (19) (24) (30) (37) (47) Total loans and leases net of unearned income $3,893,183 $3,697,819 $3,660,123 $3,674,688 $3,703,498 FIRST COMMONWEALTH FINANCIAL CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA Quarter To Date Average Balance Sheets and Net Interest Analysis at March 31, (dollars in thousands) 2008 Income/ Yield or Average Balance Expense Rate(a) Assets Interest-earning assets: Interest-bearing deposits with banks $546 $5 3.71% Tax-free investment securities 320,191 3,595 6.95% Taxable investment securities 1,321,117 16,140 4.91% Federal funds sold 43 0 2.86% Loans, net of unearned income (b)(c) 3,835,587 62,067 6.69% Total interest-earning assets 5,477,484 81,807 6.27% Noninterest-earning assets: Cash 73,860 Allowance for credit losses (42,358) Other assets 487,546 Total noninterest-earning assets 519,048 Total Assets $5,996,532 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits (d) $573,121 $1,747 1.23% Savings deposits (d) 1,089,059 5,348 1.98% Time deposits 2,164,394 23,938 4.45% Short-term borrowings 493,776 3,705 3.02% Long-term debt 549,016 5,985 4.38% Total interest-bearing liabilities 4,869,366 40,723 3.36% Noninterest-bearing liabilities and capital: Noninterest-bearing demand deposits (d) 510,150 Other liabilities 38,054 Shareholders' equity 578,962 Total noninterest-bearing funding sources 1,127,166 Total Liabilities and Shareholders' Equity $5,996,532 Net Interest Income and Net Yield on Interest-Earning Assets $41,084 3.28% Quarter To Date Average Balance Sheets and Net Interest Analysis at March 31, (dollars in thousands) 2007 Income/ Yield or Average Balance Expense Rate(a) Assets Interest-earning assets: Interest-bearing deposits with banks $622 $11 6.75% Tax-free investment securities 300,025 3,371 7.01% Taxable investment securities 1,380,899 16,878 4.96% Federal funds sold 1,871 24 5.30% Loans, net of unearned income (b)(c) 3,737,477 63,913 7.14% Total interest-earning assets 5,420,894 84,197 6.58% Noninterest-earning assets: Cash 83,093 Allowance for credit losses (43,321) Other assets 485,980 Total noninterest-earning assets 525,752 Total Assets $5,946,646 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits (d) $582,560 $2,571 1.79% Savings deposits (d) 1,122,522 6,081 2.20% Time deposits 2,110,361 22,933 4.41% Short-term borrowings 438,139 4,946 4.58% Long-term debt 581,290 6,415 4.48% Total interest-bearing liabilities 4,834,872 42,946 3.60% Noninterest-bearing liabilities and capital: Noninterest-bearing demand deposits (d) 503,477 Other liabilities 30,027 Shareholders' equity 578,270 Total noninterest-bearing funding sources 1,111,774 Total Liabilities and Shareholders' Equity $5,946,646 Net Interest Income and Net Yield on Interest-Earning Assets $41,251 3.36% (a) Yields on interest-earning assets have been computed on a tax equivalent basis using the 35% Federal income tax statutory rate. (b) Income on nonaccrual loans is accounted for on the cash basis, and the loan balances are included in interest-earning assets. (c) Loan income includes loan fees. (d) 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 Asset Quality Data (dollars in thousands) March December September June March 31, 31, 30, 30, 31, 2008 2007 2007 2007 2007 Loans on non-accrual basis $48,799 $54,119 $50,161 $47,738 $12,746 Troubled debt restructured loans 143 147 150 154 157 Total nonperforming loans $48,942 $54,266 $50,311 $47,892 $12,903 Loans past due in excess of 90 days and still accruing $20,066 $12,853 $13,677 $13,858 $13,644 Loans outstanding at end of period $3,893,183 $3,697,819 $3,660,123 $3,674,688 $3,703,498 Average loans outstanding $3,835,587 $3,687,037 $3,694,124 $3,714,927 $3,737,477 Allowance for credit losses $41,613 $42,396 $43,210 $43,968 $43,379 Nonperforming loans as a percentage of total loans 1.26% 1.47% 1.37% 1.30% 0.35% Provision for credit losses $3,179 $10,042 $7,690 $5,394 $2,979 Net credit losses $3,962 $10,294 $7,128 $4,074 $2,248 Net credit losses as a percentage of average loans outstanding (annualized) 0.42% 0.28% 0.26% 0.22% 0.24% Allowance for credit losses as a percentage of average loans outstanding 1.08% 1.15% 1.17% 1.18% 1.16% Allowance for credit losses as a percentage of nonperforming loans 85.03% 78.13% 85.89% 91.81% 336.19% Other real estate owned $3,280 $2,172 $1,803 $1,241 $1,663 Profitability Ratios (dollars in thousands) For the Quarter Ended March December September June March 31, 31, 30, 30, 31, 2008 2007 2007 2007 2007 Return on average assets 0.75% 0.80% 0.85% 0.79% 0.74% Return on average equity 7.73% 8.08% 8.59% 8.00% 7.64% Net interest margin 3.28% 3.32% 3.36% 3.31% 3.36% Efficiency ratio (a) 66.78% 65.15% 65.17% 65.88% 66.98% Fully tax equivalent adjustment $3,648 $3,614 $3,633 $3,745 $3,715 (a) 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."