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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
For the Quarter ended March 31, 1994 Commission file number 0-11242
FIRST COMMONWEALTH FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1428528
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
22 NORTH SIXTH STREET INDIANA, PA 15701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 349-7220
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes XX No .
Indicate the number of shares outstanding of each of the issuer's classes
of common stock.
CLASS OUTSTANDING AT May 12, 1994
Common Stock, $1 Par Value 18,642,024 Shares
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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Included in Part I of this report: PAGE
First Commonwealth Financial Corporation and
Subsidiaries Consolidated Balance Sheets . . . . . 3
Consolidated Statements of Income. . . . . . . . . 4
Consolidated Statements of Changes in
Shareholders' Equity . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows. . . . . . . 6
Notes to Consolidated Financial Statements . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . 9
PART II - OTHER INFORMATION
Other Information . . . . . . . . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . Signature Page
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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
March 31, December 31,
1994 1993
ASSETS
Cash and due from banks.............. $ 50,976 $ 51,044
Interest-bearing bank deposits....... 595 2,569
Federal funds sold .................. 1,430 0
Securities available for sale........ 462,195 465,224
Investment securities (Market Value
$367,603 in 1994 and
$383,943 in 1993).................. 373,567 381,811
Loans (all domestic)................. 1,062,440 1,037,675
Less unearned income............... 30,712 31,499
Less reserve for possible loan losses 14,886 14,544
Net loans....................... 1,016,842 991,632
Property and equipment............... 22,189 21,911
Other real estate owned.............. 2,758 4,929
Other assets......................... 42,081 36,149
TOTAL ASSETS.................... $1,972,633 $1,955,269
LIABILITIES
Deposits (all domestic):
Noninterest-bearing................ $ 167,170 $ 167,306
Interest-bearing................... 1,423,545 1,408,318
Total deposits.................. 1,590,715 1,575,624
Short-term borrowings................ 174,471 171,497
Other liabilities.................... 16,448 14,332
Long-term debt....................... 7,911 7,363
Total liabilities............... 1,789,545 1,768,816
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value per
share, 3,000,000 shares authorized
and unissued....................... -0- -0-
Common stock $5 par value per share,
25,000,000 shares authorized and
18,642,024 and 9,321,012 shares
issued and outstanding in 1994 and
1993, respectively................. 93,210 46,605
Additional paid-in capital........... -0- 35,296
Retained earnings.................... 98,579 107,417
Unrealized gain (loss) on securities
available for sale................. (3,701) 1,584
188,088 190,902
Deferred compensation................ (5,000) (4,449)
Total shareholders' equity......... 183,088 186,453
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY.......... $1,972,633 $1,955,269
The accompanying notes are an integral part of these consolidated financial
statements.
3 <PAGE>
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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands except per share data)
For the 3 Months
Ended March 31,
1994 1993
Interest Income
Interest and fees on loans........ $21,021 $21,695
Interest and dividends on investments:
Taxable interest................ 10,214 10,057
Interest exempt from federal
income taxes................... 871 810
Dividends....................... 226 151
Interest on federal funds sold.... 8 103
Interest on bank deposits......... 20 199
Total Interest Income.......... 32,360 33,015
Interest Expense
Interest on deposits.............. 12,759 13,794
Interest on short-term borrowings. 1,522 663
Interest on long-term debt........ 106 115
Total Interest Expense......... 14,387 14,572
Net interest income................. 17,973 18,443
Provision for possible loan losses 539 593
Net interest income after provision
for possible loan losses.......... 17,434 17,850
Other Income
Securities gains.................. 213 657
Trust income...................... 630 603
Service charges on deposits....... 1,146 1,184
Other income...................... 830 542
Total Other Income............. 2,819 2,986
Other Expenses
Salaries and employee benefits.... 6,649 6,322
Net occupancy expense............. 971 936
Furniture and equipment expense... 865 784
FDIC expense...................... 889 884
Other operating expenses.......... 3,558 3,711
Total Other Expenses........... 12,932 12,637
Income before taxes and cumulative
effect of change in accounting
method............................ 7,321 8,199
Applicable income taxes........... 2,191 2,360
Income before cumulative effect of
change in accounting method....... 5,130 5,839
Cumulative effect of change in method
of accounting for income taxes.... -0- 500
Net Income.......................... $ 5,130 $ 6,339
Average Shares Outstanding.......... 18,642,024 18,642,024
Per Share Data:
Net income before effect of change
in accounting method.............. $0.28 $0.32
Cumulative effect of change in
method of accounting for income
taxes............................. $0.00 $0.02
Net income.......................... $0.28 $0.34
Cash dividends per share............ $0.14 $0.125
The accompanying notes are an integral part of these consolidated financial
statements.
4<PAGE>
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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Unrealized
Gain (loss)
Additional on Securities Total
Common Paid-in Retained Available Deferred Shareholders'
Stock Capital Earnings For Sale Compensation Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992.... $46,605 $35,455 $93,256 $ -0- $(4,913) $170,403
Net income.................... -0- -0- 6,339 -0- -0- 6,339
Cash dividends declared....... -0- -0- (2,143) -0- -0- (2,143)
Cash dividends declared by
subsidiary prior to merger.. -0- -0- (56) -0- -0- (56)
Decrease in deferred compensation -0- -0- -0- -0- 179 179
Discount on dividend reinvestment
plan purchases.............. -0- (40) -0- -0- -0- (40)
Balance at March 31, 1993....... $46,605 $35,415 $97,396 $ -0- $(4,734) $174,682
Balance at December 31, 1993.... $46,605 $35,296 $107,417 $ 1,584 $(4,449) $186,453
Net income.................... -0- -0- 5,130 -0- -0- 5,130
Cash dividends declared....... -0- -0- (2,610) -0- -0- (2,610)
Transfer to reflect 2-for-1
stock split effected in
the form of a 100% stock
dividend.................... 46,605 (35,258) (11,347) -0- -0- -0-
Change in unrealized gain
(loss) on securities
available for sale, net
of tax effect............... -0- -0- -0- (5,285) -0- (5,285)
Increase in deferred compensation -0- -0- -0- -0- (551) (551)
Discount on dividend reinvestment
plan purchases.............. -0- (38) (11) -0- -0- (49)
Balance at March 31, 1994....... $93,210 $ -0- $98,579 $(3,701) $(5,000) $183,088
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5<PAGE>
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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the 3 Months
Ended March 31,
1994 1993
Operating Activities
Net income....................................... $ 5,130 $ 6,339
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses............ 539 593
Depreciation and amortization................. 1,239 1,081
Net gains on sales of assets.................. (277) (670)
Increase in interest receivable............... (1,125) (913)
Decrease in interest payable.................. (126) (169)
Increase in income taxes payable.............. 1,907 2,473
Provision for deferred taxes.................. 478 (594)
Other(net).................................... (442) (2,281)
Net cash provided by operating activities... 7,323 5,859
Investing Activities
Proceeds from investment securities transactions:
Sales......................................... 43,329 39,402
Maturities and redemptions.................... 57,181 70,151
Proceeds from sales of loans and other assets.... 3,306 3,089
Net decrease in time deposits with banks......... 1,974 2,378
Purchases of investment securities............... (97,368) (176,707)
Net increase in loans............................ (28,286) (28,039)
Purchase of premises and equipment............... (1,624) (806)
Net cash used by investing activities.......... (21,488) (90,532)
Financing Activities
Repayments of long-term debt..................... (3) (2)
Discount on dividend reinvestment plan purchases. (49) (40)
Dividends paid................................... (2,516) (2,143)
Dividends paid by subsidiary prior to merger..... -0- (56)
Net increase (decrease) in deposits.............. 15,121 (8,068)
Net increase in federal funds purchased.......... 7,837 21,410
Net increase (decrease) in other short-term
borrowings..................................... (4,863) 20,491
Net cash provided by financing activities... 15,527 31,592
Net increase (decrease) in cash and
cash equivalents.......................... 1,362 (53,081)
Cash and cash equivalents at January 1............. 51,044 93,892
Cash and cash equivalents at March 31.............. $52,406 $40,811
The accompanying notes are an integral part of these consolidated financial
statements.
6<PAGE>
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FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1994
(Unaudited)
NOTE 1 Management Representation
In the opinion of management, the unaudited interim consolidated
financial statements include all adjustments (consisting of only
normal recurring adjustments) necessary for a fair statement of
financial position as of March 31, 1994 and the results of
operations for the three month periods ended March 31, 1994 and
1993, and statements of cash flows and changes in shareholders'
equity for the three month periods ended March 31, 1994 and 1993.
The results of the three months ended March 31, 1994 and 1993 are
not necessarily indicative of the results to be expected for the
entire year. The interim consolidated financial statements
should be read in conjunction with the annual consolidated
financial statements of First Commonwealth Financial Corporation
and Subsidiaries, including the notes thereto.
NOTE 2 Reserve For Possible Loan Losses (in thousands)
1994 1993
Reserve balance January 1.................. $14,544 $14,267
Additions:
Provision charged to operating expenses 539 593
Recoveries of previously charged off
loans................................ 405 454
Deductions:
Loans charged off...................... 602 912
Reserve balance March 31................... $14,886 $14,402
NOTE 3 Cash Flow Disclosures (dollar amounts in thousands)
Cash paid during the first three months of the year for interest
and income taxes were as follows:
1994 1993
Interest $14,513 $14,811
Income Taxes $ -0- $ -0-
During 1994 the Corporation borrowed $730 and concurrently loaned
this amount to the ESOP Trust on identical terms. ESOP loan
payments of $179 were made by the ESOP Trust during the
respective 1994 and 1993 periods, thereby resulting in
outstanding amounts related to deferred compensation of $5,000 at
March 31, 1994 and $4,734 at March 31, 1993.
7<PAGE>
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FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 1994
(Unaudited)
NOTE 4 Change of Accounting Method
The Corporation adopted Statement of Financial Accounting
Standards No. 109 ("FAS No. 109"), "Accounting for Income Taxes",
effective January 1, 1993. FAS No. 109 is an asset and liability
approach for financial accounting and reporting for income taxes.
The effect of adopting FAS No. 109 resulted in a cumulative
benefit of $500 thousand in the first quarter of 1993.
NOTE 5 Proposed Business Combination
On March 25, 1994, the Corporation entered into a definitive
agreement to merge United National Bancorporation and its
subsidiaries ("United") into the Corporation. Under the terms of
the Agreement and Plan of Reorganization, the holders of shares
of United common stock will receive two shares of the
Corporation's common stock for each share of United common stock.
The transaction is expected to be accounted for as a pooling of
interests.
United was organized as a Pennsylvania business corporation
established in 1982 for the purposes of operating as a bank
holding company. United is headquartered in Chambersburg,
Pennsylvania with two active Subsidiaries. Unitas National Bank,
a national banking association, headquartered in Chambersburg,
Pennsylvania and Unitas Mortgage Corporation, having its
principal place of business in Carlisle, Pennsylvania, and is
engaged in the origination of mortgages for the secondary market.
Total assets of United were $148 million serviced through eleven
community offices. The proposed transaction requires the
approval of the shareholders of United and approval of the
appropriate regulatory agencies.
On April 21, 1994 the Corporation entered into a definitive
agreement to merge Reliable Financial Corporation ("Reliable")
into the Corporation. Under the terms of the Agreement and Plan
of Reorganization, the holders of shares of Reliable common stock
will receive 1.6 shares of the Corporation's common stock for
each share of Reliable common stock. The transaction is expected
to be accounted for as a pooling of interests.
Reliable is a holding company which was established in 1991 for
the purpose of owning 100% of the outstanding common stock of
Reliable Savings Bank, PaSA. Reliable Savings Bank, PaSA is a
Pennsylvania-chartered savings and loan association,
headquartered in Bridgeville, Pennsylvania with total assets of
$146 million serviced through three community offices. Reliable
shares are traded on the NASDQ National Market System under the
symbol "RESB". The proposed transaction requires the approval
of the shareholders of Reliable and approval of the appropriate
regulatory agencies.
8<PAGE>
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ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Effective December 31, 1993, the Corporation acquired Peoples
Bank of Western Pennsylvania ("PBWPA"), a Pennsylvania-chartered
bank. The merger was accounted for as a pooling of interests and
accordingly, all financial statements have been restated as
though the merger had occurred at the beginning of the earliest
period presented.
Average number of shares has been restated for the 1993 periods
to reflect the two-for-one stock split effected in the form of a
100% stock dividend declared on January 18, 1994.
First Three Months of 1994 as Compared to the First Three Months
of 1993
Net income in the three months of 1994 was $5.1 million, a
decrease of $709 thousand from the 1993 period before the change
in the method of accounting for income taxes which added $500 to
the 1993 amount. Earnings per share was $0.28 during the three
months of 1994 compared to $0.34 during the 1993 period.
Earnings per share during the 1993 period was $0.32 before the
effect of change in the method of accounting for income taxes.
Return on average assets was 1.06% and return on average equity
was 10.99% during the 1994 period, compared to 1.44% and 14.76%,
respectively during the same period of 1993. Included in the
1993 period results was the change in accounting method which
added 11 basis points (0.11%) to the return on average assets and
116 basis points (1.16%) to the return on average equity for
1993.
Net interest income, the most significant component of earnings,
is the amount by which interest generated from earning assets
exceeds interest expense on liabilities. Net interest income for
the 1994 period was $18.0 million compared to $18.4 million
during the same time period in 1993. Interest income, on a tax-
equivalent basis, decreased 90 basis points (0.90%) as a
percentage of average earning assets to 7.19% in 1994, from 8.09%
in the 1993 period. This represented a decline in all categories
of interest earning assets, reflecting lower rates in general.
Mortgage borrowers had been refinancing loans during the lower
rate environment existing in 1993 resulting in a decline in
yields that carried forward into 1994. Mortgage loan
refinancings on a national scale had accelerated the repayments
of mortgage backed securities. As proceeds were reinvested in
securities yielding lower rates, portfolio yields declined. The
recent rise in interest rates should stabilize prepayments of the
portfolio. The cost of funds was 3.65% and 4.06% in the three
months of 1994 and 1993, respectively as deposit costs, the
predominant category of interest-bearing liabilities, decreased
only 37 basis points (0.37%) to 3.28%. This was expected as
deposit customers tended to extend
9<PAGE>
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ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
First Three Months of 1994 as Compared to the First Three Months
of 1993 (Continued)
maturities over the previous 18 months as interest rates
declined, thereby preventing the cost of funds to decline as fast
as asset yields. Although interest yields and costs of funds
have continued to decline during the first quarter of 1994, the
decline has slowed. Net interest income on a tax-equivalent
basis was 4.06% of earning assets during 1994, compared to 4.61%
in the 1993 related period.
Average earning assets were 95.1% of average total assets in the
1994 period and 94.9% during the 1993 time frame. Average
interest-bearing liabilities increased as a percentage of average
total assets to 81.5% in the three months of 1994 and 81.3%
during the 1993 period.
Provision for possible loan losses was $539 thousand in 1994,
compared to $593 thousand in the three month period of 1993. Net
charge-offs against the reserve for possible loan losses were
$197 thousand in the 1994 period and can be compared to $458
thousand during the 1993 period. Nonperforming loans were 1.50%
of loans at March 31, 1994 compared to 1.52% of loans at March
31, 1993. Nonperforming loans include loans past due 90 days or
more, loans on a nonaccrual basis and renegotiated loans.
Other operating income decreased $167 thousand in 1994 to $2.8
million. Net security gains decreased $444 thousand. During the
1994 period, U.S. Treasury securities and U.S. Government agency
securities totaling $43.1 million with remaining maturities of
one year or less were sold and reinvested in similar securities
with maturities of 3-5 years. These securities were classified
as "securities available for sale" in accordance with Financial
Accounting Standards Board Statement No. 115. Other income
increased $288 thousand in the 1994 period primarily as the gain
on the sale of loans and other assets increased. Income from the
credit life reinsurance joint venture increased as did service
charges on club accounts. Increased consumer loan volumes will
tend to improve the income from credit life reinsurance. Fees
related to club accounts should tend to level out since customer
promotions occurred during the previous two quarters.
Noninterest expense was $12.9 million in the three months of 1994
which reflected an increase of $295 thousand over the 1993
period. Employee costs were $6.6 million in 1994, an increase of
$327 thousand over the 1993 related period. Employee costs
(annualized) as a percentage of average assets was 1.38% in the
1994 period, reduced from 1.43% (annualized) in the 1993 period.
Furniture and equipment expense increased primarily as a result
of increased depreciation on computer equipment acquired to
10<PAGE>
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ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
First Three Months of 1994 as Compared to the First Three Months
of 1993 (Continued)
automate new customer loan and deposit processes. Other
operating expenses decreased $153 thousand to $3.6 million in the
three months of 1994 when compared to the 1993 related period as
loan collection costs and professional fees decreased. Loan
collection costs should continue to be favorable throughout the
remainder of the year. Professional fees are expected to
increase as pending acquisitions progress.
Federal income tax expense was $2.2 million during the three
months of 1994 compared to $2.4 million during the 1993 related
period. Income before taxes decreased $878 thousand in the 1994
period as compared to the same time period of 1993. Taxable
income decreased only $519 thousand as tax-free income reduced
$359 thousand.
LIQUIDITY
Liquidity is a measure of the Corporation's ability to meet
normal cash flow requirements of both borrowers and depositors
efficiently. In the ordinary course of business, funds are
generated from deposits (primary source), and maturity or
repayment of earning assets, such as securities and loans. As an
additional secondary source, short-term liquidity needs may be
provided through the use of overnight federal funds purchased and
borrowings from the Federal Reserve Bank. Additionally, each of
the subsidiary banks are members of the Federal Home Loan Bank
and may borrow up to ten percent of their total assets at any one
time.
Net loans increased $25.2 million in the three months of 1994 as
all major categories of loans increased. Total deposits
increased $15.1 million, mostly as time deposits increased. Time
deposits in denominations of $100 thousand or more remained
stable, indicating that the growth is primarily from core
customer relationships. Investment securities held to maturity
declined $8.2 million through maturities and repayments. Federal
funds sold increased $1.4 million and interest-bearing bank
deposits declined $2.0 million while short-term borrowings
increased $3.0 million.
An additional source of liquidity are certain marketable
securities that the Corporation holds in its investment
portfolio. These securities are classified as "securities
available for sale". While the Corporation does not have
specific intentions to sell these securities, they may be sold
for the purpose of obtaining future liquidity, for management of
interest rate risk or as part of the implementation of tax
management strategies. As of March 31, 1994 securities available
for sale had an amortized cost of $467.9 million and an
approximate market value of $462.2 million. Securities available
for sale decreased $3.0 million in 1994, primarily as the market
values declined with rising interest rates.
11<PAGE>
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ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Interest Sensitivity
The objective of interest rate sensitivity management is to
maintain an appropriate balance between the stable growth of
income and the risks associated with maximizing income through
interest sensitivity imbalances. While no single number can
accurately describe the impact of changes in interest rates on
net interest income, interest rate sensitivity positions, or
"gaps", when measured over a variety of time periods, may be
helpful.
An asset or liability is considered to be interest-sensitive if
the rate it yields or bears is subject to change within a
predetermined time period. If interest-sensitive assets ("ISA")
exceeds interest-sensitive liabilities ("ISL") during a
prescribed time period, a positive gap results. Conversely, when
ISL exceeds ISA during a time period, a negative gap results.
A positive gap tends to indicate that earnings will be impacted
favorably if interest rates rise during the period and negatively
when interest rates fall during the time period. A negative gap
tends to indicate that earnings will be affected inversely to
interest rates changes. In other words, as interest rates fall,
a negative gap should tend to produce a positive effect on
earnings and when interest rates rise, a negative gap should tend
to affect earnings negatively.
The primary components of ISA include adjustable rate loans and
investments, loan repayments, investment maturities and money
market investments. The primary components of ISL include
maturing certificates of deposit, money market deposits, savings
deposits, N.O.W. accounts and short-term borrowings.
The following table lists the amounts and ratios of assets and
liabilities with rates or yields subject to change within the
periods indicated as of March 31, 1994 and December 31, 1993.
<TABLE>
<CAPTION>
March 31, 1994 December 31, 1993
0-90 0-180 0-365 0-90 0-180 0-365
DAYS DAYS DAYS DAYS DAYS DAYS
<S> <C> <C> <C> <C> <C> <C>
Interest-sensitive
assets $ 542,219 $ 649,561 $ 865,416 $ 549,123 $ 671,962 $ 872,212
Interest-sensitive
liabilities 819,396 918,560 1,040,865 819,293 947,252 1,076,855
Gap $(277,177) $(268,999) $ (175,449) $(270,170) $(275,290) $(204,643)
ISA/ISL 0.66 0.71 0.83 0.67 0.71 0.81
Gap/Total assets 14.05% 13.64% 8.89% 13.82% 14.08% 10.47%
</TABLE>
The Corporation has not experienced the kind of earnings
volatility indicated from the gap analysis. This is because
assets and liabilities with similar contractual repricing
characteristics may not reprice at the same time or to the same
degree.
12<PAGE>
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ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Interest Sensitivity (continued)
Therefore, to more precisely measure the impact of interest rate
changes on the Corporation's net interest income, management
simulates the potential effects of changing interest rates
through computer modeling. The Corporation is then better able
to implement strategies which would include an acceleration of a
deposit rate reduction or a lag in a deposit rate increase. The
repricing strategies for loans would be inversely related.
The analysis at March 31, 1994, indicated that a 200 basis point
movement in interest rates in either direction over the next
twelve months would not have a significant impact on the
Corporation's anticipated net interest income over that time
frame. Rising interest rates should tend to have a favorable
impact, while declining rates will tend to affect net interest
income negatively.
CREDIT QUALITY RISK
The following table identifies amounts of loan losses and
nonperforming loans. Past due loans are those which were
contractually past due 90 days or more as to interest or
principal payments. Renegotiated loans are those which terms had
been renegotiated to provide a reduction or deferral of principal
or interest as a result of the deteriorating financial position
of the borrower and are in compliance with the restructured
terms.
At March 31,
1994 1993
(amounts in thousands)
Nonperforming Loans:
Loans in nonaccural status $ 8,689 $ 7,294
Past due loans 6,176 3,537
Renegotiated loans 604 4,206
Total nonperforming loans $ 15,469 $ 15,037
Other real estate owned (including
in-substance foreclosures) $ 2,758 $ 4,929
Loans outstanding at end of period $1,031,728 $989,102
Average loans outstanding (year-to-date) $1,016,546 $975,764
Nonperforming loans as percent
of total loans 1.50% 1.52%
Provision for possible loan losses $ 539 $ 593
Net charge-offs $ 197 $ 458
Net charge-offs as percent of
average loans 0.02% 0.05%
Provision for possible loan losses as
percent of net charge-offs 273.6% 129.5%
Reserve for possible loan losses as
percent of average loans outstanding 1.46% 1.48%
13<PAGE>
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ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
CAPITAL RESOURCES
Equity capital decreased $3.4 million in 1994. Earnings
retention was $2.5 million, representing an earnings retention
rate of 49.1%. The retained net income remains in permanent
capital to fund future growth and expansion. Stock purchased by
the Employee Stock Ownership Plan (the "ESOP"), subject to the
debt of the Corporation, reduced equity by $730 thousand while
the loan repayment by the ESOP of debt guaranteed by the
Corporation increased equity by $179 thousand. Amounts paid to
fund the discount on reinvested dividends reduced equity by $49
thousand. The market value adjustment to securities available
for sale reduced equity by $5.3 million resulting from market
values declining as interest rates increased.
A capital base can be considered adequate when it enables the
Corporation to intermediate funds responsibly and provide related
services, while protecting against future uncertainties. The
evaluation of capital adequacy depends on a variety of factors,
including asset quality, liquidity, earnings history and
prospects, internal controls and management caliber. In
consideration of these factors, management's primary emphasis
with respect to the Corporation's capital position is to maintain
an adequate and stable ratio of equity to assets.
The Federal Reserve Board issued risk-based capital adequacy
guidelines which are designed principally as a measure of credit
risk. These guidelines require: (1) at least 50% of a banking
organization's total capital be common and other "core" equity
capital ("Tier I Capital"); (2) assets and off-balance-sheet
items must be weighted according to risk; (3) the total capital
to risk-weighted assets ratio be at least 8%; and (4) a minimum
leverage ratio of Tier I capital to average total assets. The
minimum leverage ratio is not specifically defined, but is
generally expected to be 4-5 percent for all but the most highly
rated banks, as determined by a regulatory rating system. As of
March 31, 1994, the Corporation had a Tier I Capital to risk-
weighted assets ratio and total capital to risk-weighted assets
ratio of 15.96% and 17.25%, respectively and a minimum leverage
ratio of 8.77%.
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FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Effective April 23, 1994 Article 5 of the
Corporation's Articles of Incorporation has been
amended to authorize the creation of an additional
75,000,000 shares of Common Stock, and change the
Common Stock of the Corporation by changing each
issued and outstanding share of Common Stock, par
value of $5 per share, into one share of Common
Stock, par value of $1 per share. Revised Articles
of Incorporation are included herein as Exhibit
3(i).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
(a) On April 23, 1994 the Corporation held its
regularly scheduled annual meeting of
shareholders. Represented by proxy, or in
person was 13,229,728 shares of the 18,642,024
shares outstanding.
(b) The following directors were re-elected for
terms to expire in 1997:
E. H. Brubaker
A. B. Hallstrom
Thomas J. Hanford
H. H. Heilman, Jr.
Charles J. Szesczyk
John I. Whally, Jr.
(c) The shareholders voted 12,708,099 shares in the
affirmative, 367,922 in the negative and
153,707 shares abstained to amend Article 5 of
the Corporation's Article of Incorporation to
authorize the creation of an additional
75,000,000 shares of Common Stock, and to
change the Common Stock of the Corporation by
changing each issued and outstanding share of
Common Stock, par value $5 per share, into one
share of Common Stock, par value of $1 per
share.
15
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FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
(Continued)
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit
Number Exhibit Page
3 (i) Amended Articles of Incorporation 18
b) Reports on Form 8-K
(i) Form 8-K dated March 14, 1994 reporting
that the Corporation entered into a letter
of intent to acquire Reliable Financial
Corporation.
(ii) Form 8-K dated April 21, 1994 reporting
that the Corporation entered into a
definitive agreement to acquire Reliable
Financial Corporation.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST COMMONWEALTH FINANCIAL CORPORATION
(Registrant)
DATED: MAY 12, 1994 /S/ E. James Trimarchi
E. James Trimarchi, Chairman of the
Board, President and Chief Executive
Officer
DATED: MAY 12, 1994 /S/ John J. Dolan
John J. Dolan, Sr. Vice President,
Comptroller, and Chief Financial
Officer
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EXHIBIT 3(i)
ARTICLES OF INCORPORATION As Amended
23 April 1994
OF
FIRST COMMONWEALTH FINANCIAL CORPORATION
In compliance with the requirements of section 204 of the
Business Corporation Law, act of May 5, 1933 (P.L. 364) (15 P.S.
1204) the undersigned, desiring to be incorporated as a business
corporation, hereby certifies (certify) that:
1. The name of the corporation is: First Commonwealth
Financial Corporation.
2. The location and post office address of the initial
registered office of the corporation in this
Commonwealth is: 601 Philadelphia Street, Indiana,
Pennsylvania, 15701.
3. The corporation is incorporated under the Business
Corporation Law of the Commonwealth of Pennsylvania for
the following purpose or purposes:
To have unlimited power to engage in and do any lawful act
concerning any or all lawful business for which corporations may
be incorporated under the provisions of the Business Corporation
Law of the Commonwealth of Pennsylvania. The corporation is
incorporated under the provisions of the Business Corporation Law
of the Commonwealth of Pennsylvania (act of May 5, 1933, P.L.
364) (15 P.S. 1204, as amended).
4. The term for which the corporation is to exist is:
perpetual.
5. The aggregate number of shares that the corporation
shall have authority to issue is 3,000,000 shares of
Preferred Stock, par value $1 per share (the "Preferred
Stock"), and 100,000,000 shares of Common Stock, par
value $1 per share (the "Common Stock").
The Board of Directors shall have the full authority
permitted by law to divide the authorized and unissued shares of
Preferred Stock into classes or series, or both, and to determine
for any such class or series its designation and the number of
shares of the class or series and the voting rights, preferences,
limitations and special rights, if any, of the shares of the
class or series.
6. The name(s) and post office address(es) of each
incorporator(s) and the number and class of shares
subscribed by such incorporator(s) is (are):
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Number and
Name Address Class of Shares
E. James Trimarchi 601 Philadelphia St. 1 Share Common
Indiana, PA 15701
7. Except as otherwise provided in Section 902.1 (Merger
Without Shareholder Approval) of the Pennsylvania
Business Corporation Law (or the corresponding
provisions of any future Pennsylvania corporate law), no
merger, consolidation, liquidation or dissolution of the
corporation nor any action that would result in the sale
or other disposition of all or substantially all of the
assets of the corporation shall be valid unless first
approved by the affirmative vote of the holders of at
least seventy-five percent (75%) of the outstanding
shares of Common Stock. This Article 7 may not be
amended unless first approved by the affirmative vote of
the holders of at least seventy-five percent (75%) of
outstanding shares of Common Stock.
8. Cumulative voting rights shall not exist with respect to
the election of directors.
9. (a) The Board of Directors may, if it deems it
advisable, oppose a tender or other offer for the
corporation's securities, whether the offer is in cash
or in the securities of a corporation or otherwise.
When considering whether to oppose an offer, the Board
of Directors may, but is not legally obligated to,
consider any or all of the following:
(i) Whether the offer price is acceptable based
on the historical and present operating
results or financial condition of the
corporation;
(ii) Whether a more favorable price could be
obtained for the corporation's securities in
the future;
(iii) The impact which an acquisition of the
corporation would have on the employees,
depositors and customers of the corporation
and its subsidiaries and the communities
which they serve;
(iv) The reputation and business practices of the
offeror and its management and affiliates as
they would affect the employees, depositors
and customers of the corporation and its
subsidiaries and the future value of the
corporation's stock;
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(v) The value of the securities (if any) which
the offeror is offering in exchange for the
corporation's securities based on an analysis
of the worth of the corporation as compared
to the corporation or other entity whose
securities are being offered; and
(vi) Any antitrust or other legal and regulatory
issues that are raised by the offer.
(b) If the Board of Directors determines that an offer
should be rejected, it may take any lawful action to
accomplish its purpose, including, but not limited to,
any or all of the following: advising shareholders not
to accept the offer; litigation against the offeror;
filing complaints with all governmental and regulatory
authorities; acquiring the corporation's securities;
selling or otherwise issuing authorized but unissued
securities or treasury stock or granting options with
respect thereto; acquiring a company to create an
antitrust or other regulatory problem for the offeror
and obtaining a more favorable offer from another
individual or entity.
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