First Commonwealth Reports 2005 Fourth Quarter and Year-End Financial Results

INDIANA, Pa., Jan. 25 /PRNewswire-FirstCall/ -- First Commonwealth Financial Corporation today reported financial results for the fourth quarter and year ended December 31, 2005.

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

The Company reported fourth quarter 2005 net income of $11.8 million, or $0.17 per diluted share, compared with net income of $16.6 million, or $0.24 per diluted share, in the same period last year. The 2005 fourth-quarter results included net securities losses of $8.2 million ($5.3 million after tax, or $(0.08) per diluted share), which consisted of securities losses of $2.7 million ($1.7 million after tax) resulting from the sale of $100 million of U.S. Agency securities to provide funding for the deposits associated with the previously disclosed sale of five branch offices and additional securities losses of $5.5 million ($3.6 million after tax). The branch office sale was a component of the Company's branch optimization initiative to focus operations in higher growth markets and generated a pre-tax gain of $8.7 million ($5.7 million after tax, or $0.08 per diluted share). The fourth quarter of 2005 also included additional restructuring charges of $2.7 million ($1.8 million after tax, or $0.03 per diluted share) related to the organizational restructuring and related personnel changes. Fourth-quarter return on average equity was 8.93% and return on average assets was 0.77% compared with 12.31% and 1.06%, respectively in the corresponding period last year.

Full Year 2005 Results

Net income for the 12 months ended December 31, 2005 was $57.8 million, or $0.83 per diluted share, compared with $38.7 million, or $0.58 per diluted share, in the corresponding period last year. The 2005 results included net securities losses of $7.7 million ( $5.0 million after tax, or $(0.07) per diluted share) compared to net securities gains of $4.1 million ($2.7 million after tax, or $0.04 per diluted share) for 2004. The 2005 period also included gains from the sale of branch offices of $11.8 million ($7.7 million after tax, or $0.11 per diluted share), a gain from the sale of the Company's merchant services business of $2.0 million ($1.3 million after tax, or $0.02 per diluted share) and restructuring charges totaling $5.4 million ($3.5 million after tax, or $0.05 per diluted share). The restructuring and other management changes are expected to result in prospective annual pretax cost savings of approximately $3.4 million. Last year's results included a non- recurring charge of $29.5 million ($19.2 million after tax, or $0.29 per diluted share) representing a penalty for the prepayment of Federal Home Loan Bank (FHLB) long-term borrowings. Return on average equity for the twelve- month period was 10.89% and return on average assets was 0.94% compared with 7.82% and 0.66%, respectively for the same period last year.

During 2005, the Company made the following fundamental improvements that are expected to help strengthen its future financial performance and market position:

- Constructed a total of four new branch offices in higher growth Pittsburgh-area markets as well as renovating or relocating four existing branches. - Sold six branch offices and one drive-thru location, generally in slower growth markets of central Pennsylvania. - Sold its merchant processing services operation. - Appointed Gerard (Jerry) M. Thomchick as the new President and CEO of First Commonwealth Bank and promoted key executive management at First Commonwealth Bank. - Reorganized and streamlined its operations under First Commonwealth Bank. Net Interest Income

Net interest income for the fourth quarter of 2005 decreased $4.2 million, or 9.1%, to $41.8 million from $46.0 million in last year's fourth quarter. Fourth-quarter net interest margin (net interest income as a percentage of average earning assets on a fully tax-equivalent basis) declined 19 basis points to 3.20%, compared with 3.39% in the corresponding period last year. The decline in net interest margin was due primarily to funding costs increasing at a faster rate than yields on earning assets. Average earning assets for the fourth quarter of 2005 were $174.4 million lower than average earning assets for the fourth quarter of 2004 partially as a result of funding the branch sale. Additionally, due to the relatively flat yield curve the Company has limited the reinvestment of investment securities that have matured or have been paid down.

For 2005, net interest margin decreased two basis points to 3.28% compared with 3.30% in last year's twelve month period. Yields on earnings assets (on a fully tax-equivalent basis) for the year increased 36 basis points to 5.70%, while cost of funds increased 42 basis points to 2.70%.

Total loans and deposits increased 3.1% and 4.0%, respectively, from the balances at year-end 2004.

Other Income

Total other income for the fourth quarter of 2005 declined 9.8% to $10.1 million from $11.2 million in the same period last year as net securities losses and a decrease in income related to final settlement of the previously disclosed sale of the Company's merchant services business were partially offset by gains on the sale of branch offices.

Total other income for 2005 increased 5.4% to $50.2 million from $47.6 million in the same period last year. The increase was due primarily to gains from the previously disclosed sale of branch offices and merchant processing operation, higher deposit service charges and card related interchange income, partially offset by net securities losses and the previously mentioned decline in merchant processing income.

Other Expenses

Other expenses for the fourth quarter of 2005 increased to $37.2 million from $35.2 million in the corresponding period last year, primarily as a result of the previously mentioned restructuring charges of $2.7 million. Higher fourth-quarter salaries and employee benefit costs were offset by lower other operating expenses related in part to the sale of the Company's merchant processing operations, net of additional expense related to final settlement. Fourth quarter salaries and employee benefits costs included $958 thousand related to a previously disclosed separation agreement executed upon the retirement of the Company's chairman. Salaries and employee benefit costs in the fourth quarter of 2005 also included $784 thousand related to supplemental life insurance provided to certain individuals through coverage under bank owned life insurance.

For 2005, other expenses declined to $144.0 million, or 12.5%, from $164.6 million in 2004. This year's results included the previously mentioned restructuring charges of $5.4 million and last year's results included the FHLB prepayment penalty of $29.5 million and merger and integration costs of $2.1 million. During 2005, the Company experienced increases in salaries and employee benefit costs, occupancy expense, Pennsylvania shares taxes, and intangible amortization costs.

Credit Quality and Provision for Credit Losses

As of December 31, 2005, total nonperforming loans (including loans past due 90 days but still accruing) remained stable at $25.5 million compared with $25.6 million at December 31, 2004. Loans past due 90 days but still accruing decreased $694 thousand to $14.0 million, but were offset by a $659 thousand increase in nonaccrual loans to $11.4 million. Nonperforming loans as a percentage of total loans were 0.70% at December 31, 2005 compared with 0.73% at December 31, 2004.

Fourth-quarter 2005 provision for credit losses increased to $1.0 million from $775 thousand in the same period last year. Net charge offs increased for the quarter to $3.1 million compared with $2.9 million in the fourth quarter last year.

For all of 2005, the provision for credit losses increased to $8.6 million from $8.1 million in the same period last year. Net charge offs for the period increased to $10.2 million from $9.4 million in the corresponding period last year. The Corporation believes that the allowance for credit losses is adequate at the present time.

About First Commonwealth Financial Corporation

First Commonwealth Financial Corporation is a $6.0 billion bank holding company headquartered in Indiana, Pennsylvania. It operates 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:

- 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. - 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. FIRST COMMONWEALTH FINANCIAL CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (Dollar Amounts in Thousands, except per share data) For the Quarter Ended For the 12 Months December 31, Ended December 31, 2005 2004 2005 2004 Interest income $79,643 $75,615 $312,068 $278,025 Interest expense 37,799 29,581 138,618 110,690 Net interest income 41,844 46,034 173,450 167,335 Provision for credit losses 1,034 775 8,628 8,070 Net interest income after provision for credit losses 40,810 45,259 164,822 159,265 Net securities gains (losses) (8,192) 31 (7,673) 4,077 Trust income 1,328 1,131 5,526 5,254 Service charges on deposits 3,935 3,956 15,710 14,975 Gain on sale of branches 8,742 0 11,832 0 Gain on sale of merchant services business 0 0 1,991 0 Insurance commissions 591 672 3,423 3,387 Income from bank owned life insurance 1,356 1,310 5,391 5,157 Merchant discount income (loss) (725) 915 1,349 3,638 Card related interchange income 1,313 1,083 4,881 3,579 Other income 1,728 2,068 7,795 7,582 Total other income 10,076 11,166 50,225 47,649 Salaries and employee benefits 19,040 17,769 73,522 68,916 Net occupancy expense 2,610 2,762 10,988 9,656 Furniture and equipment expense 3,105 3,398 11,578 11,688 Data processing expense 797 1,003 3,535 3,808 Pennsylvania shares tax expense 1,137 1,118 4,876 4,532 Intangible amortization 566 566 2,262 1,443 Merger and integration charges 0 0 0 2,125 Restructuring charges 2,733 0 5,437 0 Debt prepayment fees 0 0 0 29,495 Other operating expense 7,198 8,625 31,756 32,892 Total other expenses 37,186 35,241 143,954 164,555 Income before income taxes 13,700 21,184 71,093 42,359 Applicable income taxes 1,917 4,620 13,257 3,707 Net income $11,783 $16,564 $57,836 $38,652 Average shares outstanding 69,386,338 69,173,249 69,276,141 65,887,611 Average shares outstanding assuming dilution 69,837,737 69,938,616 69,835,285 66,487,516 Per Share Data: Basic earnings per share $0.17 $0.24 $0.83 $0.59 Diluted earnings per share $0.17 $0.24 $0.83 $0.58 Cash dividends per share $0.170 $0.165 $0.665 $0.645 FIRST COMMONWEALTH FINANCIAL CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (Dollar Amounts in Thousands, except per share data) December 31, December 31, 2005 2004 Assets Cash and due from banks on demand $84,555 $79,591 Interest-bearing bank deposits 473 2,403 Federal funds sold 1,575 0 Securities available for sale, at market 1,851,986 2,162,313 Securities held to maturity, at amortized cost (Market value $89,804 in 2005 and $81,886 in 2004) 87,757 78,164 Loans: Portfolio loans 3,623,102 3,512,774 Loans held for sale 1,276 2,311 Unearned income (119) (252) Allowance for credit losses (39,492) (41,063) Net loans 3,584,767 3,473,770 Premises and equipment 60,860 56,965 Other real estate owned 1,655 1,814 Goodwill 122,702 123,607 Amortizing intangibles, net 15,251 17,513 Other assets 214,739 202,338 Total assets $6,026,320 $6,198,478 Liabilities Deposits (all domestic): Noninterest-bearing $491,644 $480,843 Interest-bearing 3,504,908 3,363,632 Total deposits 3,996,552 3,844,475 Short-term borrowings 665,665 946,474 Other liabilities 43,314 35,977 Subordinated debentures 108,250 108,250 Other long-term debt 691,494 731,324 Total long-term debt 799,744 839,574 Total liabilities 5,505,275 5,666,500 Shareholders' Equity Common stock $1 par value per share 71,978 71,978 Additional paid-in capital 173,967 175,453 Retained earnings 318,569 307,363 Accumulated other comprehensive income (loss) (9,655) 10,002 Treasury stock (20,214) (26,643) Unearned ESOP shares (13,600) (6,175) Total shareholders' equity 521,045 531,978 Total liabilities and shareholders' equity $6,026,320 $6,198,478 Shares issued 71,978,568 71,978,568 Shares outstanding 70,377,916 69,868,908 Treasury shares 1,600,652 2,109,660 Book value per share $7.40 $7.61 Market value per share $12.93 $15.39 FIRST COMMONWEALTH FINANCIAL CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (Dollar Amounts in Thousands) Quarter To Date Average Balance Sheets and Net Interest Analysis At December 31, 2005 Yield or Average Balance Income/Expense Rate (a) Assets Interest-earning assets: Time deposits with banks $817 $7 3.42% Tax free investment securities 283,818 3,273 7.04% Taxable investment securities 1,692,717 18,464 4.33% Federal funds sold 2,377 25 4.12% Loans, net of unearned income (b)(c) 3,619,142 57,874 6.52% Total interest-earning assets 5,598,871 79,643 5.88% Noninterest-earning assets: Cash 80,444 Allowance for credit losses (41,857) Other assets 434,187 Total noninterest-earning assets 472,774 Total Assets $6,071,645 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits (d) $558,573 $1,707 1.21% Savings deposits (d) 1,257,698 5,182 1.63% Time deposits 1,726,513 15,715 3.61% Short-term borrowings 685,683 6,443 3.73% Long-term debt 802,539 8,752 4.33% Total interest-bearing liabilities 5,031,006 37,799 2.98% Noninterest-bearing liabilities and capital: Noninterest-bearing demand deposits (d) 488,873 Other liabilities 28,012 Shareholders' equity 523,754 Total noninterest-bearing funding sources 1,040,639 Total Liabilities and Shareholders' Equity $6,071,645 Net Interest Income and Net Yield on Interest-Earning Assets $41,844 3.20% FIRST COMMONWEALTH FINANCIAL CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (Dollar Amounts in Thousands) Quarter To Date Average Balance Sheets and Net Interest Analysis At December 31, 2004 Yield or Average Balance Income/Expense Rate (a) Assets Interest-earning assets: Time deposits with banks $3,964 $11 1.09% Tax free investment securities 268,392 3,025 6.89% Taxable investment securities 1,975,562 19,885 4.00% Federal funds sold 554 2 1.73% Loans, net of unearned income (b)(c) 3,524,828 52,692 6.12% Total interest-earning assets 5,773,300 75,615 5.44% Noninterest-earning assets: Cash 79,377 Allowance for credit losses (43,460) Other assets 424,301 Total noninterest-earning assets 460,218 Total Assets $6,233,518 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits (d) $553,298 $788 0.57% Savings deposits (d) 1,284,072 3,525 1.09% Time deposits 1,568,395 11,695 2.97% Short-term borrowings 933,083 4,725 2.01% Long-term debt 852,069 8,848 4.13% Total interest-bearing liabilities 5,190,917 29,581 2.26% Noninterest-bearing liabilities and capital: Noninterest-bearing demand deposits (d) 480,237 Other liabilities 26,990 Shareholders' equity 535,374 Total noninterest-bearing funding sources 1,042,601 Total Liabilities and Shareholders' Equity $6,233,518 Net Interest Income and Net Yield on Interest-Earning Assets $46,034 3.39% (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 net 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 (Dollar Amounts in Thousands) Year To Date Average Balance Sheets and Net Interest Analysis At December 31, 2005 Yield or Average Balance Income/Expense Rate (a) Assets Interest-earning assets: Time deposits with banks $807 $29 3.61% Tax free investment securities 279,339 12,699 6.99% Taxable investment securities 1,829,449 77,089 4.21% Federal funds sold 5,060 161 3.18% Loans, net of unearned income (b)(c) 3,597,705 222,090 6.36% Total interest-earning assets 5,712,360 312,068 5.70% Noninterest-earning assets: Cash 80,716 Allowance for credit losses (41,834) Other assets 430,179 Total noninterest-earning assets 469,061 Total Assets $6,181,421 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits (d) $563,254 $5,262 0.93% Savings deposits (d) 1,298,984 18,885 1.45% Time deposits 1,643,350 54,923 3.34% Short-term borrowings 797,148 24,305 3.05% Long-term debt 833,000 35,243 4.23% Total interest-bearing liabilities 5,135,736 138,618 2.70% Noninterest-bearing liabilities and capital: Noninterest-bearing demand deposits (d) 488,305 Other liabilities 26,062 Shareholders' equity 531,318 Total noninterest-bearing funding sources 1,045,685 Total Liabilities and Shareholders' Equity $6,181,421 Net Interest Income and Net Yield on Interest-Earning Assets $173,450 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 December 31, 2004 Yield or Average Balance Income/Expense Rate (a) Assets Interest-earning assets: Time deposits with banks $4,964 $34 0.69% Tax free investment securities 250,832 11,447 7.02% Taxable investment securities 1,932,896 76,909 3.98% Federal funds sold 512 6 1.22% Loans, net of unearned income (b)(c) 3,251,645 189,629 6.02% Total interest-earning assets 5,440,849 278,025 5.34% Noninterest-earning assets: Cash 74,559 Allowance for credit losses (41,199) Other assets 364,092 Total noninterest-earning assets 397,452 Total Assets $5,838,301 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits (d) $538,672 $2,229 0.41% Savings deposits (d) 1,141,059 11,491 1.01% Time deposits 1,513,663 45,170 2.98% Short-term borrowings 796,591 11,989 1.51% Long-term debt 868,784 39,811 4.58% Total interest-bearing liabilities 4,858,769 110,690 2.28% Noninterest-bearing liabilities and capital: Noninterest-bearing demand deposits (d) 452,701 Other liabilities 32,614 Shareholders' equity 494,217 Total noninterest-bearing funding sources 979,532 Total Liabilities and Shareholders' Equity $5,838,301 Net Interest Income and Net Yield on Interest-Earning Assets $167,335 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) 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 net 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 (Dollar Amounts in Thousands) Asset Quality Data At December 31, 2005 2004 Loans on nonaccrual basis $11,391 $10,732 Past due loans 13,977 14,671 Renegotiated loans 173 183 Total nonperforming loans $25,541 $25,586 Loans outstanding at end of period $3,624,259 $3,514,833 Average loans outstanding(year-to-date) $3,597,705 $3,251,645 Allowance for credit losses $39,492 $41,063 Nonperforming loans as percent of total loans 0.70% 0.73% Net charge-offs(year-to-date) $10,199 $9,375 Net charge-offs as percent of average loans (annualized) 0.28% 0.29% Allowance for credit losses as percent of average loans outstanding 1.10% 1.26% Allowance for credit losses as percent of nonperforming loans 154.62% 160.49% Other real estate owned $1,655 $1,814 Profitability Ratios For the Quarter Ended For the 12 Months December 31, Ended December 31, 2005 2004 2005 2004 Return on average assets 0.77% 1.06% 0.94% 0.66% Return on average equity 8.93% 12.31% 10.89% 7.82% Efficiency ratio (FTE) (a) 67.29% 58.37% 60.66% 72.40% Fully tax equivalent adjustment $3,343 $3,171 $13,649 $12,305 (a) 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."

First Call Analyst: FCMN Contact: