<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 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
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
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.
TITLE OF CLASS OUTSTANDING AT March 21, 1995
Common Stock, $1 Par Value 22,360,828 Shares
The aggregate market value of the voting common stock, par value $1 per
share, held by non-affiliates of the registrant (Based upon the closing sale
price on March 21, 1995), was approximately $321,436,903.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement related to the annual meeting of
security holders to be held April 22, 1995 are incorporated by reference
into Part III.<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
First Commonwealth Financial Corporation
FORM 10-K
INDEX
PART I PAGE
ITEM 1. Business
Description of business.......................... 2
Competition...................................... 4
Supervision and regulation....................... 4
ITEM 2. Properties....................................... 7
ITEM 3. Legal Proceedings................................ 7
ITEM 4. Submission of Matters to a Vote of Security
Holders......................................... 7
PART II
ITEM 5. Market for Registrant's Common Stock and Related
Security Holder Matters......................... 8
ITEM 6. Selected Financial Data.......................... 9
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.............. 10
ITEM 8. Financial Statements and Supplementary Data...... 25
ITEM 9. Disagreements on Accounting and Financial
Disclosures..................................... 51
PART III
ITEM 10. Directors and Executive Officers of the
Registrant..................................... 51
ITEM 11. Management Renumeration and Transactions........ 52
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management................................. 52
ITEM 13. Certain Relationships and Related Transactions.. 52
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................ 53
Signatures..................................... 54
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 1. Business
Description of Business
First Commonwealth Financial Corporation (the "Corporation") was
incorporated as a Pennsylvania business corporation on November 15, 1982 and
is registered as a bank holding company under the Bank Holding Company Act
of 1956, as amended. After its incorporation it became affiliated as a
result of statutory mergers with the following: On April 29, 1983 it
affiliated with National Bank of the Commonwealth ("NBOC"), a national bank
in Indiana, Indiana County; on March 19, 1984 with Deposit Bank ("Deposit"),
a Pennsylvania-chartered bank and trust company in DuBois, Clearfield
County; on August 16, 1985 with Dale, a national bank in Dale (Johnstown),
Cambria County; and on December 14, 1985 with the First National Bank of
Leechburg ("Leechburg"), a national bank in Leechburg, Armstrong County;
December 31, 1986 with CNB CORP, Inc. ("CNB"), a one-bank holding company
and its wholly-owned subsidiary, Citizens National Bank in Windber
("Citizens"). CNB was then combined with the Corporation. Immediately
thereafter, and on the same day, Citizens was combined with Dale and the
resulting entity was named Cenwest National Bank ("Cenwest"). On May 31,
1990 the Corporation affiliated with Peoples Bank and Trust Company ("PBT"),
a Pennsylvania-chartered bank and trust company in Jennerstown, Somerset
County. On April 30, 1992 the Corporation affiliated with Central Bank
("Central"), a Pennsylvania-chartered bank in Hollidaysburg, Blair County.
On December 31, 1993 the Corporation affiliated with Peoples Bank of Western
Pennsylvania ("BPWPA"), a Pennsylvania-chartered commercial bank in New
Castle, Lawrence County. On September 27, 1994 the Corporation affiliated
with United National Bancorporation, ("United"), a bank holding company, and
its wholly-owned subsidiaries. Unitas National Bank ("Unitas Bank") and
Unitas Mortgage Corporation ("Unitas Mortgage") were the only active
subsidiaries of United. Unitas Bank is a national bank headquartered in
Chambersburg, Franklin County, Pennsylvania. Unitas Mortgage engages in the
origination of mortgages for sale in the secondary mortgage market and is
headquartered in Carlisle, Pennsylvania. Upon merger, United was combined
with the Corporation and its subsidiaries became subsidiaries of the
Corporation. On September 29, 1994 the Corporation affiliated with Reliable
Financial Corporation ("RFC"), a savings and loan holding company and its
wholly-owned subsidiary, Reliable Savings Bank, PaSA ("RSB"), a state-
chartered, federally insured savings bank headquartered in Bridgeville,
Pennsylvania. As a result of the merger, RFC became a wholly-owned
subsidiary of the Corporation, with its principal places of business in
Allegheny and Washington Counties in western Pennsylvania. NBOC, Deposit,
Cenwest, Leechburg, Peoples, Central, PBWPA and Unitas Bank (the "Subsidiary
Banks") are now wholly owned subsidiaries of the Corporation with their
principal places of business in central and western Pennsylvania.
Commonwealth Systems Corporation ("CSC") was incorporated as a Pennsylvania
business corporation in 1984 by the Corporation to function as its data
processing subsidiary and it has its principal place of business in Indiana,
Pennsylvania. Before August 1984, it had operated as the data processing
department of NBOC. First Commonwealth Trust Company ("FCTC") was
incorporated on January 18, 1991 as a Pennsylvania chartered trust company
to render general trust services. The trust departments of Subsidiary Banks
were combined to form FCTC, and the corporate headquarters are located in
Indiana, Pennsylvania. The Corporation and its subsidiaries employed
approximately 1,050 persons (full-time equivalents) at December 31, 1994.
Through the Subsidiary Banks, the Corporation traces its banking origins to
1866. The Subsidiary Banks conduct their business through 82 community
banking offices in 52 communities in the counties of Adams (1 office),
Allegheny (2), Armstrong (3), Beaver (1), Bedford (4), Blair (7), Cambria
(11), Centre (4), Clearfield (5), Elk (3), Franklin (2), Huntingdon (7),
Indiana (9), Jefferson (5), Lawrence (6), Somerset (6), Washington (1) and
Westmoreland (5).
2<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 1. Business (Continued)
The Subsidiary Banks engage in a general banking business and offer a full
range of financial services. They offer such general retail banking
services as demand, savings and time deposits; mortgage, consumer
installment and commercial loans; and credit card loans through MasterCard
and VISA. RSB is a full service savings association. Although
approximately 90% of its loan portfolio consists of loans secured by
mortgages on 1-4 family residences, it offers various loan services,
including secured and unsecured, commercial and consumer loans, construction
and commercial mortgages and lease financing. RSB also offers a full range
of deposit products.
The Subsidiary Banks currently offer a Retirement Advantage Certificate of
Deposit, a product which is licensed by American Deposit Corp., (U.S. Patent
pending) which offers competitive interest rates and the interest on which
is tax deferred to the depositor for Federal income tax purposes. Before
the "maturity date", during the accumulation period, deposits plus accrued
interest are insured by the Federal Deposit Insurance Corporation ("FDIC")
for up to an aggregate amount of $100,000. After the Maturity Date, during
the withdrawal phase, FDIC insurance covers the maturity balance less the
amounts withdrawn to date. At the maturity date, the depositor, at his
option, may withdraw any amount not to exceed two-thirds of the balance at
that time. Beginning one month after the maturity date, the depositor will
receive monthly payments to be paid over the remaining life (lives) of the
account owner(s). This product is expected to provide a stable, long-term
and lower cost source of funds.
The Subsidiary Banks and RSB (Banks) operate a network of 57 automated
teller machines ("ATMs") which permit their customers to conduct routine
banking transactions 24 hours a day. Of the ATMS, 37 are located on the
premises of their main or branch offices and 20 are in remote locations.
All the ATMs are part of the MAC network which consist of nearly 13,000 ATMs
owned by numerous banks, savings and loan associations and credit unions
located throughout 16 states, of which 14 are east of Mississippi River.
The Banks' MAC customers may use the HONOR Network, which has 9,800 ATM's
located primarily in the southeast quadrant of the United States. The ATM's
operated by the Banks are also part of the global MasterCard/Cirrus network
which is comprised of more than 168,900 ATMs located in the United States,
Canada and 58 other countries and territories, which services over 365
million card holders. Such networks allow the Bank's customers to withdraw
cash and in certain cases conduct other banking transactions from ATMs of
all participating financial institutions.
CSC is the data processing subsidiary of the Corporation. It provides on-
line general ledger accounting services and bookkeeping services for deposit
and loan accounts to the Corporation, the Subsidiary Banks and two other
bank customer located in Pennsylvania. It competes, principally with data
processing subsidiaries of other, mostly larger, banks, on the basis of the
price and quality of its services and the speed with which such services are
delivered.
FCTC has six branch offices in the service areas of the Banks and offers
personal and corporate trust services, including administration of estates
and trusts, individual and corporate investment management and custody
services and employee benefit trust services.
On June 1, 1989 Commonwealth Trust Credit Life Insurance Company began
operations. The Corporation owns 50% of the voting common stock of the new
company. The Commonwealth Trust provides reinsurance for credit life and
credit and health insurance activities sold by the subsidiaries of the two
unrelated holding companies under a joint venture arrangement whereby the
net income derived from such reinsurance inures proportionally to the
benefit of the holding company selling the underlying insurance to its
banks' customers. Commonwealth Trust has been profitable since its
formation.
3<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 1. Business (Continued)
The Corporation does not engage in any significant business activities other
than holding the stock of its subsidiaries. The Corporation does not at
present have any plans to expand or modify its business or that of its
subsidiaries, other than as described herein. Nevertheless, it will be
receptive to and may actively seek out mergers and acquisitions in the event
opportunities which management considers advantageous to the development of
the Corporation's business arise, and may otherwise expand or modify its
business as management deems necessary to respond to changing market
conditions or the laws and regulations affecting the business of banking.
Competition
Each of the Banks, FCTC and Unitas Mortgages faces intense competition, both
from within and without its service area, in all aspects of its business.
The Subsidiary Banks compete for deposits, in such forms as checking,
savings and NOW (negotiable order of withdrawal) accounts, MMDA (money
market deposit accounts) and certificates of deposit, and in making consumer
loans and loans to smaller businesses, with numerous other commercial banks
and savings banks doing business within their service areas. With respect
to loans to larger businesses the Banks also complete with much larger banks
located outside of their service areas. They also compete, primarily in
making consumer loans and for deposits, with state and federally chartered
savings and loan associations and with credit unions. In recent years they
have encountered significant competition for deposits from money market
funds and institutions that offer annuities located throughout the United
States. Money market funds pay dividends to their shareholders (which are
the equivalent are the equivalent of the interest paid by banks on deposits)
and they are able to offer services and conveniences similar to those
offered by the Subsidiary Banks. Annuities accumulate interest on the
amounts deposited over predetermined time period. The depositor is then
entitled to withdraw his funds for a fixed period of time or until death.
The effect of such competition has been to increase the costs of the rest of
deposits, which provide the funds with which loans are made. In addition to
savings and loan associations and credit unions, the Banks also compete for
consumer loans with local offices of national finance companies and finance
subsidiaries of automobile manufacturers and with national credit card
companies such as MasterCard and VISA, whose cards, issued through financial
institutions, are held by consumer throughout their service areas. The
Banks believe that the principal means by which they compete for deposits
and consumer and smaller commercial loans are the number and desirability of
the locations of their offices and ATMs, the sophistication and quality of
their services and the prices (primarily interest rates) of their services.
Additionally, the Banks intend to remain competitive by offering financial
services that target specific customer needs, such as the Retirement
Advantage CD.
Supervision and Regulation
The Corporation is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended ("the Bank Holding Company Act") and
is registered such with the Federal Reserve Board. As a registered bank
holding company, it is required to file with the Federal Reserve Board an
annual report and other information. The Federal Reserve Board is also
empowered to make examinations and inspections of the Corporation and its
subsidiaries.
The Bank Holding Company Act and Regulation Y of the Federal Reserve Board
require every bank holding company to obtain the prior approval of the
Federal Reserve Board before it may acquire direct or indirect ownership or
control of more than 5% of the outstanding voting shares or substantially
all of the assets of a bank or merger or consolidate with another bank
holding company. The Federal Reserve Board may not approve acquisitions by
FCFC of such percentage of voting shares or substantially all the assets of
any bank located in any state other than Pennsylvania unless the laws of
such state specifically authorize such an acquisition.
4 <PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 1. Business (Continued)
Supervision and Regulation (Continued)
The Bank Holding Company Act generally prohibits a bank holding company from
engaging in a non-banking business or acquiring direct or indirect ownership
or control of more that 5% of the outstanding voting shares of any non-
banking corporation subject to certain exceptions, the principal exception
being where the business activity in question is determined by the Federal
Reserve Board to be closely related to banking or to managing or controlling
banks to be a proper incident thereto. The Bank Holding Company Act does
not place territorial restrictions on the activities of such banking related
subsidiaries of bank holding companies.
Under the Federal Reserve Act, subsidiary banks of a bank holding company
are subject to certain restrictions on extensions of credit to the bank
holding company or any of its subsidiaries, investments in the stock or
other securities thereof, or acceptance of such stock or securities as
collateral for loans to any one borrower. A bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with the extension of credit or the furnishing of property or
services.
Under the Pennsylvania Banking Code, there is no limit on the number of
Pennsylvania banks that may be owned or controlled by a Pennsylvania bank
holding company.
Upon the acquisition of RFC, the Corporation also became a savings and loan
holding company subject to regulation and supervision of the Office of
Thrift Supervision ("OTS") under the Savings and Loan Holding Company Act,
and by the Pennsylvania Department of Banking under the Pennsylvania Savings
Association Code of 1967, as amended. While the regulation and supervision
of multiple regulators increase the Corporation's cost of compliance with
federal and state banking laws and regulations, it is not excepted to have a
significant adverse effect on its operations or financial condition.
RFC is a unitary savings and loan holding company. Its only subsidiary, RSB
is a Qualified Thrift Lender ("QTL") because more than 65% of its portfolio
assets (as defined by law) are invested in residential mortgages, and
certain mortgage backed and housing related assets such as Federal Home Loan
Bank stock and stock issued by the Federal National Mortgage Association.
As a unitary savings and loan holding company, RFC and any subsidiary it
might create are not restricted to the statutorily prescribed list of
permissible activities found in the Savings and Loan Holding Company Act and
in certain regulations of the predecessor of the OTS, and the Savings and
Loan Holding Company Act imposes no limits on their direct or indirect non-
savings institutions operations.
If RFC were to acquire a second savings association and operate it as a
separate subsidiary, it would become a multiple savings and loan holding
company and its activities would be confined to a statutorily prescribed
list of activities regarded as closely related. If RSB were to lose its QTL
status, thereafter RFC would be regulated and supervised by the OTS as a
bank holding company, as described above for the Corporation, with each
savings institution subsidiary being treated as a bank for this purpose.
5 <PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 1. Business (Continued)
Subsidiary Banks and RSB
Of the Subsidiary Banks, NBOC, Cenwest, Leechburg, and Unitas Bank are
subject to the supervision of and are regularly examined by the Comptroller
of the Currency. In addition, because they are members of the Federal
Reserve System, they are subject to the supervision of and examination by
that System. Deposit, PBT, Central and PBWPA are Pennsylvania-chartered
banks and not members of the Federal Reserve System, are subject to the
supervision of and regularly examined by the Pennsylvania Department of
Banking and the Federal Deposit Insurance Corporation ("FDIC"), and subject
to certain regulations of the Federal Reserve Board. In addition, since
they are a Pennsylvania-chartered bank, they are subject to the supervision
of the Pennsylvania Department of Banking. RSB is a Pennsylvania-chartered
savings association and is subject to the supervision of and is regularly
examined by the Pennsylvania Department of Banking and the OTS. All the
Subsidiary Banks are members of the FDIC. RSB is a member of the Savings
and Loan Insurance Fund of the FDIC. As such, all are subject to
examination by the FDIC.
The areas of operation subject to regulation by Federal and Pennsylvania
laws, regulations and regulatory agencies include reserves against deposits,
maximum interest rates for specific classes of loans, truth-in-lending
disclosure, permissible types of loans and investments, trust operations,
mergers and acquisitions, issuance of securities, payment of dividends.
Community Reinvestment Act evaluations, mandatory external audits,
establishment of branches and other aspects of operations. Under the
Pennsylvania Banking Code, a state or national bank or a savings association
located in Pennsylvania may establish branches anywhere in the state.
Reciprocal Regional Interstate Banking
As already noted, a bank holding company located in one state cannot acquire
a bank or a bank holding company located in another state unless the law of
such other state specifically permits such acquisition. On June 25, 1986,
Pennsylvania passed a law (Act No. 1986-69) which provides that a bank
holding company located in any state or the District of Columbia can acquire
a Pennsylvania bank or bank holding company if the jurisdiction where the
acquiring bank holding company is located has passed an enabling law that
permits a Pennsylvania bank holding company to acquire a bank or a bank
holding company in such jurisdiction. As of December 31, 1994 enabling laws
have been passed so that the required reciprocity presently exists with
approximately 34 states, of which the following 18 are east of the
Mississippi River: Connecticut, Delaware, Illinois, Indiana, Kentucky,
Louisiana, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New
Jersey, New York, Ohio, Rhode Island, Tennessee, Vermont and West Virginia.
A similar law is applicable to savings associations and savings and loan
holding companies.
It is difficult to determine the precise effects that reciprocal regional
interstate banking will have on the Corporation, but the law has increased,
and as reciprocity becomes effective will increase further, the number of
potential buyers for Pennsylvania banks and bank holding companies. The law
also will permit Pennsylvania bank holding companies and Pennsylvania
savings and loan holding companies that desire to expand outside
Pennsylvania to acquire banks, savings institutions and bank holding
companies located in jurisdictions with which Pennsylvania has reciprocity.
Effects of Governmental Policies
The business and earnings of the Corporation is effected not only be general
economic conditions, but also by the monetary and fiscal policies of the
United State Government and its agencies, including the Federal Reserve
Board. An important function of the Federal Reserve Board is to regulate
the national supply of bank credit. Among the instruments of monetary
6<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 1. Business (Continued)
Effects of Governmental Policies (Continued)
policy used by the Federal Reserve Board to implement these objectives are
open market operations in United State government securities, changes in the
discount rate on borrowings by member banks and savings institutions from
the Federal Reserve System and changes in reserve requirements against bank
and savings institution deposits. These instruments, together with fiscal
and economic policies of various governmental entities, influence overall
growth of bank loans, investments and deposits and may also effect interest
rates charged on loans, received on investments or paid for deposits.
The monetary policies of the Federal Reserve Board have had a significant
effect on the operating results of bank holding companies and their
subsidiary banks in the past and are expected to continue to do so in the
future. In view of changing conditions in the national and Pennsylvania
economies and in the money markets, as well as the effect of actions by
monetary and fiscal authorities, including the Federal Reserve Board, no
prediction can be made as to possible future changes in interest rates,
deposit levels and loan demand or the effect of such changes on the business
and earnings the Corporation or its subsidiaries.
ITEM 2. PROPERTIES
The Corporation's principal office is located in the old Indiana county
Courthouse complex. This certified Pennsylvania and national historic
landmark was built in 1870 and restored by NBOC in the early 1970s. The
Corporation, NBOC and CSC occupy this grand structure, which provides 32,000
square feet of floor space, under a 25-year restoration lease agreement with
Indiana County, which NBOC entered into in 1973 and which contains a renewal
option. Under the lease, NBOC is obligated to pay all taxes, maintenance
and insurance on the building and to restore it in conformity with historic
guidelines. The building is now in excellent condition and provides ample
space for the Corporation, NBOC and CSC's operations. The Banks have 82
banking facilities of which 22 are leased and 60 owned in fee, free of all
liens and encumbrances. All of the facilities utilized by the Corporation
and its subsidiaries are used primarily for banking activities. Management
believes all such facilities to be in good repair and well suited to their
uses. Management presently expects that such facilities will be adequate to
meet the anticipated needs of the Corporation and its subsidiaries for the
immediate future.
ITEM 3. LEGAL PROCEEDINGS
The information appearing in NOTE 17 of the Notes to the Consolidated
Financial Statements included in Item 8 of this filing is incorporated by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
7
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
Part II
ITEM 5. Market for Registrant's Common Stock and Related Security Holder
Matters
First Commonwealth Financial Corporation (the "Corporation") is listed on
the New York Stock Exchange (NYSE) under the symbol "FCF". The table below
sets forth the high and low sales prices per share and cash dividends
declared per share for common stock of the Corporation. Prices per share
and dividends per share have been adjusted to reflect the two-for-one stock
split effected in the form of a 100% stock dividend declared on January 18,
1994.
Cash
Dividends
Period High Sale Low Sale Per Share
1994
First Quarter $20.250 $16.750 $0.140
Second Quarter $18.500 $15.500 $0.140
Third Quarter $19.000 $15.000 $0.140
Fourth Quarter $15.375 $13.500 $0.160
Cash
Dividends
Period High Sale Low Sale Per Share
1993
First Quarter $14.625 $12.375 $0.125
Second Quarter $14.875 $13.250 $0.125
Third Quarter $16.000 $13.313 $0.125
Fourth Quarter $17.625 $14.875 $0.135
The approximate number of holders of record of the Corporation's common
stock is 8,300.
8
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<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 6. Selected Financial Data (Dollar Amounts in Thousands, except per
share data)
The following selected financial data is not covered by the auditor's report
and should be read in conjunction with Management's Discussion and Analysis
of Financial Condition and Results of Operations, which follows, and with
the consolidated financial statements and related notes. All amounts have
been restated to reflect the poolings of interests.
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Interest income....................... $159,644 $154,990 $155,606 $150,627 $149,055
Interest expense...................... 69,102 67,164 73,295 82,205 85,114
Net interest income................. 90,542 87,826 82,311 68,422 63,941
Provision for possible loan losses.... 2,896 2,920 3,744 5,451 4,298
Net interest income after provision
for possible loan losses.......... 87,646 84,906 78,567 62,971 59,643
Securities gains (losses)............. 5,536 3,528 955 711 (315)
Other operating income................ 10,635 10,960 9,362 7,465 7,233
Other operating expenses.............. 60,855 59,405 54,957 46,147 44,148
Income before taxes and cumulative
effect of change in accounting
method......................... 42,962 39,989 33,927 25,000 22,413
Applicable income taxes............... 14,226 12,444 9,393 6,305 5,815
Income before cumulative effect
of change in accounting method. 28,736 27,545 24,534 18,695 16,598
Cumulative effect of change in
accounting method................... -0- 865 -0- -0- -0-
Net income............................ $ 28,736 $ 28,410 $ 24,534 $ 18,695 $ 16,598
Per Share Data(a)
Net income before cumulative effect
of change in accounting method..... $1.28 $1.23 $1.12 $0.89 $0.79
Cumulative effect of change in
accounting method.................. 0.00 0.04 0.00 0.00 0.00
Net income.......................... $1.28 $1.27 $1.12 $0.89 $0.79
Dividends declared.................. $0.58 $0.51 $0.55 $0.38 $0.33
Average shares outstanding.......... 22,432,062 22,416,360 21,983,845 20,899,175 20,899,175
At End of Period
Total assets........................ 2,334,921 2,252,836 2,077,824 1,746,365 1,599,282
Investment securities............... 813,687 909,166 703,227 559,127 444,435
Loans and leases, net of unearned
income............................ 1,377,794 1,211,109 1,165,494 1,009,595 972,927
Reserve for possible loan losses.... 17,337 16,483 15,828 10,681 9,278
Deposits............................ 1,881,060 1,822,085 1,788,226 1,519,044 1,377,871
Long-term debt...................... 7,596 7,363 8,130 6,524 5,718
Shareholders' equity................ 225,135 228,910 210,687 178,984 152,676
Key Ratios
Return on average assets............ 1.26% 1.32% 1.26% 1.12% 1.08%
Return on average equity............ 12.55% 12.86% 12.30% 11.82% 11.42%
Net loans to deposit ratio.......... 72.32% 65.56% 64.29% 65.78% 69.94%
Dividends per share as a percent of
net income per share.............. 45.31% 40.16% 49.11% 42.70% 41.77%
Average equity to average assets
ratio............................. 10.01% 10.23% 10.26% 9.52% 9.43%
</TABLE>
(a) Average number of shares outstanding has been restated to reflect poolings
of interests. Restatements also reflect two-for-one stock split on
January 18, 1994 effected in the form of a 100% stock dividend.
9<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
This discussion and the related financial data are presented to assist in
the understanding and evaluation of the consolidated financial condition and
the results of operations of First Commonwealth Financial Corporation (the
"Corporation") including its subsidiaries for the years ended December 31,
1994, 1993 and 1992 and are intended to supplement, and should be read in
conjunction with, the consolidated financial statements and related
footnotes.
The Corporation acquired United National Bancorporation and its subsidiaries
("United") and Reliable Financial Corporation and its subsidiary
("Reliable") effective September 27, 1994 and September 29, 1994,
respectively. Effective December 31, 1993, the Corporation acquired Peoples
Bank of Western Pennsylvania ("PBWPA"). The mergers were accounted for as
poolings of interests and accordingly, all financial statements have been
restated as though the mergers had occurred at the beginning of the earliest
period presented.
Effective April 30, 1992, the Corporation acquired all of the outstanding
common stock of Central Bank ("Central"). The merger was accounted for as a
purchase transaction, whereby the results of operations of Central from the
date of acquisition were included in the financial statements.
Results of Operations
Net income in 1994 was $28.7 million, an increase of $326 thousand over the
1993 level of $28.4 million and compared to $24.5 million reported in 1992.
Earnings per share before the cumulative effect of the change in accounting
method increased $0.05 per share in 1994 to $1.28. Merger costs in 1994
reduced earnings by $0.07. Earnings per share from operations was $1.23 in
1993 and $1.12 in 1992. The cumulative effect of change in the method of
accounting for income taxes added $0.04 per share in 1993. Per share data
has been restated to reflect the two-for-one stock split effected in the
form of an 100% stock dividend declared on January 18, 1994. Return on
average assets was 1.26% and return on average equity was 12.55% during
1994, compared to 1.32% and 12.86%, respectively, for 1993. Return on
average assets was 1.26% during 1992 while return on average equity was
12.30%.
The following is an analysis of the impact of changes in net income on
earnings per share:
1994 1993
vs. vs.
1993 1992
Net income per share, prior year $1.27 $1.12
Increase (decrease) from changes in:
Net interest income 0.12 0.17
Provision for possible loan losses 0.00 0.04
Security transactions 0.09 0.11
Other income (0.02) 0.07
Salaries and employee benefits (0.03) (0.12)
Occupancy and equipment costs 0.01 (0.03)
Settlement of lender liability claim 0.00 0.06
Merger expenses (0.07) (0.01)
Other expenses 0.03 (0.05)
Provision for income taxes (0.08) (0.13)
Subtotal 1.32 1.23
Cumulative effect of change in accounting
method (0.04) 0.04
Net income per share $1.28 $1.27
10 <PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 was $90.5 million in 1994
compared to $87.8 million in 1993 and $82.3 million in 1992. The following
is an analysis of the average balance sheets and net interest income for
each of the three years in the period ended December 31, 1994.
11
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis
<TABLE>
<CAPTION>
Average Balance Sheets and Net Interest Analysis
(Dollar Amounts in Thousands)
1994 1993 1992
Average Income/ Yield or Average Income/ Yield or Average Income/ Yield or
Balance Expense Rate(a) Balance Expense Rate(a) Balance Expense Rate(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Time deposits with
banks $ 14,677 $ 600 4.09% $ 37,905 $ 1,275 3.36% $ 57,546 $ 3,002 5.22%
Investment securities 870,656 48,645 5.80 818,319 47,988 6.07 672,129 46,146 7.19
Federal funds sold 4,138 186 4.49 8,865 268 3.02 22,179 795 3.58
Loans (b) (c), net of
unearned income 1,283,866 110,213 8.66 1,187,236 105,459 9.01 1,094,197 105,663 9.84
Total interest-
earning assets 2,173,337 159,644 7.48 2,052,325 154,990 7.71 1,846,051 155,606 8.65
Noninterest-earning assets:
Cash 54,542 48,794 45,583
Reserve for loan losses (17,120) (16,399) (14,692)
Other assets 77,498 74,596 67,729
Total noninterest-
earning assets 114,920 106,991 98,620
Total Assets $2,288,257 $2,159,316 $1,944,671
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing
demand deposits $ 226,824 3,764 1.66% $ 226,902 4,686 2.07% $ 196,948 5,676 2.88%
Savings deposits 503,327 11,520 2.29 493,323 11,908 2.41 453,096 14,259 3.15
Time deposits 948,804 45,901 4.84 922,456 46,473 5.04 879,730 51,152 5.81
Short-term borrowings 168,929 7,394 4.38 99,943 3,641 3.64 39,185 1,753 4.47
Long-term debt 7,744 523 6.75 7,985 456 5.71 7,803 455 5.83
Total interest-
bearing liabilities 1,855,628 69,102 3.72 1,750,609 67,164 3.84 1,576,762 73,295 4.65
Noninterest-bearing
liabilities and capital:
Noninterest-bearing
demand deposits 185,058 170,293 152,152
Other liabilities 18,576 17,428 16,317
Shareholders' equity 228,995 220,986 199,440
Total noninterest-
bearing funding sources 432,629 408,707 367,909
Total Liabilities and
Shareholders' Equity $2,288,257 $2,159,316 $1,944,671
Net Interest Income and
Net Yield On Interest-
earning Assets $ 90,542 4.30% $ 87,826 4.43% $82,311 4.68%
(a) Yields on interest-earning assets have been computed on a tax equivalent basis using the
35% Federal income tax statutory rate in 1994 and 1993, and 34% in 1992.
(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.
</TABLE>
12<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis
Both interest income and interest expense increased as volumes increased.
Average interest earning assets increased $121.0 million in 1994 to $2.2
billion. Average loans increased $96.6 million and were supported by
deposit growth and increased short-term borrowings. Average interest-
bearing liabilities increased $105.0 million during 1994 while average
interest-bearing liabilities grew $173.8 million during 1993. The growth in
1993 included $41.8 million related to a leveraging strategy whereby
adjustable rate investments, primarily mortgage-backed securities, were
funded with borrowings from the Federal Home Loan Bank and other banks.
This leverage strategy added approximately $1.0 million to net interest
income in 1993. The leveraged transaction for 1994 averaged $52.1 million
and the related addition to net interest income was approximately $593
thousand.
Both asset yields and the cost of funds declined in 1994 and 1993. Asset
yields, on a tax-equivalent basis, decreased 23 basis points (0.23%) during
1994 and 94 basis points (0.94%) during 1993. Earning asset yields declined
in 1994 faster than liability costs primarily because of lower consumer loan
rates. Although yields have improved each quarter of 1994, they have
declined when compared to the year ended December 31, 1993. Mortgage
borrowers and other borrowers refinanced loans during the low interest rate
environment during 1993 fixing lower yields that carried forward into 1994.
As interest rates increased, so did yields but the yields have not increased
to previous levels.
Additionally, mortgage loan refinancing on a national scale had accelerated
the repayments of mortgage backed securities ("MBS") during 1993 and the
first quarter of 1994. Portfolio yields declined as proceeds were
reinvested in securities at the then prevailing market rates. The rise in
interest rates since March of 1994 has stabilized prepayments of the
portfolio and corresponding portfolio yields. The primary risk of owning
MBS relates to the uncertainty of prepayments of the underlying mortgages.
Interest rate changes have a direct impact on prepayment speeds. As
interest rates increase, prepayment speeds generally decline, resulting in a
longer average life of a MBS. Conversely as interest rates decline,
prepayment speeds increase, resulting in a shorter average life of a MBS.
Using computer simulation models, the Corporation tests the average life and
yield volatility of all MBSs under various interest rate scenarios on a
continuing basis to insure that volatility falls within acceptable limits.
The Corporation holds no "high risk" securities nor does the Corporation own
any securities of a single issuer exceeding 10% of shareholders' equity
other than U.S. Government and Agency securities.
13<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis
During 1993 deposit customers tended to extend maturities which locked in
rates as deposit rates fell, thereby preventing the cost of funds to decline
as fast as asset yields during 1993 and early 1994. This should tend to
level deposit costs if interest rates continue to rise. Net interest
margin, on a tax-equivalent basis, was 4.30% during 1994 compared to 4.43%
in 1993 and 4.68% during 1992. The Corporation's use of computer modeling
to manage interest rate risk is further described in the "Interest
Sensitivity" section of this discussion herein. The following table shows
the effect of changes in volumes and rates on interest income and interest
expense.
<TABLE>
<CAPTION>
Analysis of Year-to-Year Changes in Net Interest Income
(Dollar Amounts in Thousands)
1994 Change from 1993 1993 Change from 1992
Total Change Due Change Due Total Change Due Change Due
Change to Volume to Rate Change to Volume to Rate
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Time deposits with banks $ (675) $ (780) $ 105 $(1,727) $(1,025) $ (702)
Securities 657 3,177 (2,520) 1,842 10,511 (8,669)
Federal funds sold (82) (143) 61 (527) (477) (50)
Loans 4,754 8,706 (3,952) (204) 9,155 (9,359)
Total interest income 4,654 10,960 (6,306) (616) 18,164 (18,780)
Interest-bearing liabilities:
Deposits (1,882) 1,567 (3,449) (8,020) 4,612 (12,632)
Short-term borrowings 3,753 2,511 1,242 1,888 2,716 (828)
Long-term debt 67 (14) 81 1 11 (10)
Total interest expense 1,938 4,064 (2,126) (6,131) 7,339 (13,470)
Net interest income $2,716 $ 6,896 $(4,180) $ 5,515 $10,825 $(5,310)
</TABLE>
The provision for possible loan losses is an amount added to the reserve
against which loan losses are charged. The amount of the provision is
determined by management based upon its assessment of the size and quality
of the loan portfolio and the adequacy of the reserve in relation to the
risks inherent within the loan portfolio. The provision for possible loan
losses was $2.9 million in 1994 and 1993 compared to $3.7 million in 1992.
Net charge-offs against the reserve for possible loan losses were $2.0
million, or 0.16% of average total loans in 1994. This compared to $2.3
million in 1993 and $3.1 million in 1992. Net charge-offs were 0.19% and
0.28% of average total loans in 1993 and 1992, respectively. For an
analysis of credit quality, see the "Credit Review" section of this
discussion.
14<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis
The following table presents an analysis of the consolidated reserve for
possible loan losses for the five years ended December 31, 1994 (dollars in
thousands):
<TABLE>
<CAPTION>
Summary of Loan Loss Experience
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of year $1,377,794 $1,211,109 $1,165,494 $1,009,595 $972,927
Average loans outstanding $1,283,866 $1,187,236 $1,094,197 $ 977,620 $953,232
Reserve for possible loan losses:
Balance, beginning of year $ 16,483 $ 15,828 $ 10,681 $ 9,277 $ 8,463
Addition as result of acquisition -0- -0- 4,501 -0- -0-
Loans charged off:
Commercial, financial and agricultural 1,246 774 860 2,007 1,953
Loans to individuals 1,676 1,825 1,906 1,889 2,108
Real estate-construction -0- -0- -0- -0- -0-
Real estate-commercial 23 791 706 447 232
Real estate-residential 179 357 650 424 138
Lease financing receivables 52 106 127 117 263
Total loans charged off 3,176 3,853 4,249 4,884 4,694
Recoveries of loans previously charged off:
Commercial, financial and agricultural 254 563 371 153 449
Loans to individuals 563 565 397 600 516
Real estate-construction -0- -0- -0- -0- -0-
Real estate-commercial 249 276 317 27 16
Real estate-residential 61 177 47 47 136
Lease financing receivables 7 7 19 10 93
Total recoveries 1,134 1,588 1,151 837 1,210
Net loans charged off 2,042 2,265 3,098 4,047 3,484
Provision charged to expense 2,896 2,920 3,744 5,451 4,298
Balance, end of year $ 17,337 $ 16,483 $ 15,828 $ 10,681 $ 9,277
Ratios:
Net charge-offs as a percentage
of average loans outstanding 0.16% 0.19% 0.28% 0.41% 0.37%
Reserve for possible loan losses
as a percentage of average loans
outstanding 1.35% 1.39% 1.45% 1.09% 0.97%
</TABLE>
Total other operating income increased $1.7 million in 1994 to $16.2
million. Net securities gains increased $2.0 million to $5.5 million during
1994 compared to $3.5 million in 1993 and $955 thousand in 1992. During
1994 $7.5 million of securities classified as "held-to-maturity" were sold
at a net gain of $16 thousand. All but one security were called and were
sold within three months of the call date. The remaining security was sold
because of a significant deterioration of the issuer's creditworthiness.
Also during 1994, the Corporation sold 115,000 shares of Federal Home Loan
Mortgage Corporation common stock, primarily in the third and fourth
quarter, with a book value of $970 thousand for a gain of $5.3 million in
anticipation of a market value decline if interest rates continued to rise.
During 1993 marketable equity securities with a book value of $1.6 million
were sold for a $1.0 million gain. The remaining securities transactions
during 1994 along with those of 1993 and 1992 were primarily the sales of
U.S. Treasury securities, U.S. Government agency securities maturing within
a year and proceeds were reinvested in U.S. Government agency securities
with maturities of 2-4 years. Trust income decreased $106 thousand during
1994 to $2.2 million as market values of assets managed declined, reflecting
the turbulent bond and stock markets, thereby reducing the billing basis for
many of the trust accounts. Trust income during 1993 increased $227
thousand as core revenues increased and income from estates decreased.
Service charges on deposits increased over the reporting periods primarily
as average total deposits increased. It should be noted that the 1992
period only reflects the results of Central after April 30, 1992, the date
of the merger, since the transaction was accounted for as a purchase
transaction.
15<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis
Total other operating expenses increased $1.5 million to $60.9 million in
1994 and compared to $59.4 million and $55.0 million in 1993 and 1992,
respectively. Merger costs during 1994 were $1.7 million. Results for the
1992 period reflected only eight months of Central's results after the
merger date.
Employee costs experienced an increase of only $666 thousand to $30.0
million. Total employee costs were $29.4 million and $26.2 million in 1993
and 1992, respectively. Salary levels are generally maintained through
attrition management programs. Employee costs as a percentage of average
assets was 1.31% in 1994, reduced from 1.36% in 1993 and was 1.35% in 1992.
Net occupancy expense and furniture and equipment expense remained stable
over the three year period as the process of automating loan documentation
and the branch network progressed. Newer equipment reduced the costs of
maintenance and repairs but these costs were offset by higher depreciation
expense. This upgrade is expected to improve platform productivity and
reduce loan documentation risks.
The deposit insurance assessment from the Federal Deposit Insurance
Corporation ("FDIC") increased as a result of deposit increases. The
Federal Deposit Insurance Corporation Improvement Act of 1992 ("FDICIA") has
established a risk-based assessment system which went into effect January 1,
1993. This system designates an assessment rate for each insured
institution based on a combination of its capital and supervisory condition.
Because of the Corporation's bank subsidiaries strong capital positions and
supervisory conditions, only future rate changes or major changes in deposit
levels will cause a significant change in the related expense. This
assessment rate is not scheduled to increase in 1995, but the prospects of a
decline is being discussed by the FDIC. If a rate decrease occurs, it would
probably not occur until after mid-year of 1995.
Other operating expenses increased $837 thousand in 1994 over the 1993
related period to $18.6 million. This really reflects a decrease of $863
thousand after adjusting the 1994 total for the $1.7 million of merger costs
deducted. The amortization of core deposit intangibles decreased $484
thousand as the intangibles related to the Deposit Bank merger which
occurred in 1984 became fully amortized. Loan collection and professional
fees that were not merger related experienced decreases. The 1993 period
increased in relationship to the 1992 period primarily because of two
factors. The inclusion of Central for the entire period of 1993 increased
this category $829 thousand and an increase in the amortization of core
deposit intangibles as a result of the implementation of FAS No. 109, was
$715 thousand. FAS No. 109 requires that a deferred tax liability or asset
be recognized for differences between assigned values and the tax bases of
the assets (except goodwill) and liabilities recognized for business
combinations accounted for as purchase transactions. For purchase business
combinations consummated prior to the beginning of the year for which FAS
No. 109 was first applied, remaining balances of the differences between
assigned values and the tax bases of these assets and liabilities must be
adjusted from their net-of-tax amounts to their pretax amounts. This
"gross-up" action, in effect creates a larger balance of the temporary
difference that must be amortized over its expected life. Other cost
increases occurred in 1993 in the process of the collection of loans or the
disposition of real estate acquired in lieu of loan repayment but these
costs were partially responsible for the increased recovery of previously
charged off loans. The 1992 period included a nonrecurring out of court
lending liability claim settlement in the amount of $1.4 million for which a
subsidiary of the Corporation was a defendant.
16 <PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis
Income tax expense was $14.2 million during 1994 representing an increase of
$1.8 million over the 1993 total of $12.4 million and compared to $9.4
million in 1992. Taxable income increased $5.3 million during 1994 while
taxable income increased $8.3 million in 1993. The increase in 1993 of the
Federal income tax rate for corporate taxable income in excess of $10
million to 35 percent from 34 percent increased the Corporation's Federal
income tax expense by $259 thousand in 1993. The Corporation's effective
tax rate increased to 33.1% in 1994 from 31.1% in 1993 and 27.7% in 1992.
The most significant factor for the increase in the 1994 effective rate was
related to the nondeductibility of merger expenses for income tax purposes.
Liquidity
Liquidity is a measure of the Corporation's ability to efficiently meet
normal cash flow requirements of both borrowers and depositors. In the
ordinary course of business, funds are generated from deposits (primary
source) and the 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,
borrowings through the use of lines available for repurchase agreements, and
borrowings from the Federal Reserve Bank. Additionally, all of the banking
subsidiaries are members of the Federal Home Loan Bank and may borrow up to
ten percent of their total assets at any one time. The sale of earning
assets may also provide an additional source of liquidity.
The Corporation's long-term liquidity source is a large core deposit base
and a strong capital position. Core deposits are the most stable source of
liquidity a bank can have due to the long-term relationship with a deposit
customer. Deposits increased $59.0 million in 1994 primarily in core
customer deposit relationships. Non-core deposits, which are time deposits
in denominations of $100 thousand or more represented only 6.8% of total
deposits at December 31, 1994. Certificates of deposits of $100 thousand or
more at December 31, 1994, 1993 and 1992 had remaining maturities as
follows:
<TABLE>
<CAPTION>
Maturity Distribution of
Large Certificates of Deposit
(Dollar Amounts in Thousands)
1994 1993 1992
Amount Percent Amount Percent Amount Percent
Remaining Maturity:
<S> <C> <C> <C> <C> <C> <C>
3 months or less $ 37,968 30% $ 21,229 20% $ 29,296 27%
Over 3 months through 6 months 10,191 8 16,078 16 16,963 15
Over 6 months through 12 months 17,885 14 17,996 17 11,798 11
Over 12 months 61,841 48 48,645 47 51,552 47
Total $127,885 100% $103,948 100% $109,609 100%
</TABLE>
17<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis
Loans increased $166.7 million during 1994 as all categories increased, but
consumer loans and real estate secured loans were the primary categories of
increased volume reflecting a strengthening of consumer loan demand. Below
is a schedule of loans by classification for the five years ended December
31, 1994.
<TABLE>
<CAPTION>
Loans by Classification
(Dollar Amounts in Thousands)
1994 1993 1992 1991 1990
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial,
agricultural and
other $ 180,373 13% $ 179,227 14% $ 216,183 18% $ 274,799 26% $ 241,924 24%
Real estate-construction 23,131 2 12,980 1 17,007 1 14,696 1 14,210 2
Real estate-commercial 268,417 19 238,864 19 204,853 17 121,578 12 114,935 11
Real estate-residential 587,734 41 511,889 41 484,218 40 405,078 39 403,652 40
Loans to individuals 332,167 23 279,357 23 259,419 22 212,323 20 215,448 21
Net leases 30,498 2 26,617 2 23,521 2 19,121 2 19,737 2
Gross loans and
leases 1,422,320 100% 1,248,934 100% 1,205,201 100% 1,047,595 100% 1,009,906 100%
Unearned income (44,526) (37,825) (39,707) (38,000) (36,979)
Total loans, and leases
net of unearned income $1,377,794 $1,211,109 $1,165,494 $1,009,595 $ 972,927
</TABLE>
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 have been
designated as "available for sale" because 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 December 31,
1994, securities available for sale had an amortized cost of $468.9 million
and a market value of $443.2 million. Gross unrealized gains were $200
thousand and gross unrealized losses were $25.9 million. The decline in the
market values reflects the steep interest rate rise during 1994 which has
affected the entire bond market of which some analysts are calling the worst
bond market in history. This market depreciation is not of major concern
since the Corporation does not anticipate a need to liquidate the
investments until maturity. Below is a schedule of the maturity
distribution of securities held to maturity and securities available for
sale at December 31, 1994.
<TABLE>
<CAPTION>
Maturity Distribution of Securities Held to Maturity
(Dollar Amounts in Thousands)
U.S. Treasury, and other States and Total Weighted
U.S. Government Agencies Political Other Book Average
and Corporations Subdivisions Securities Value Yield*
<S> <C> <C> <C> <C> <C>
Within 1 year $ 2,255 $13,552 $ 1,821 $ 17,628 6.85%
After 1 but within 5 years 111,281 15,853 11,526 138,660 5.78
After 5 but within 10 years 72,752 37,017 1,321 111,090 6.32
After 10 years 99,725 3,236 159 103,120 5.93
Total $286,013 $69,658 $14,827 $370,498 6.04%
</TABLE>
<TABLE>
<CAPTION>
Maturity Distribution of Securities Available for Sale
At Amortized Cost
(Dollar Amounts in Thousands)
U.S. Treasury, and other States and Total Weighted
U.S. Government Agencies Political Other Amortized Average
and Corporations Subdivisions Securities Cost Yield*
<S> <C> <C> <C> <C> <C>
Within 1 year $ 21,399 $ 128 $ 5,635 $ 27,162 5.26%
After 1 but within 5 years 160,815 -0- 2,481 163,296 5.12
After 5 but within 10 years 91,429 -0- 4,025 95,454 5.80
After 10 years 169,707 -0- 13,257 182,964 6.31
Total $443,350 $ 128 $25,398 $468,876 5.73%
</TABLE>
*Yields are calculated on a tax-equivalent basis
18<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis
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 period. A negative gap tends to indicate that earnings will
be affected inversely to interest rate 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 following table lists the amounts and ratios of assets and liabilities
with rates or yields subject to change within the periods indicated as of
December 31, 1994 and 1993 (Dollar Amounts in Thousands):
<TABLE>
<CAPTION> 1994
Cumulative
0-90 Days 91-180 Days 181-365 Days 0-365 Days
<S> <C> <C> <C> <C>
Loans $ 423,116 $ 95,292 $182,799 $ 701,207
Investments 20,298 24,414 55,647 100,359
Other interest-earning assets 92,845 6,696 6,707 106,248
Total interest-sensitive
assets 536,259 126,402 245,153 907,814
Certificates of deposit 166,557 114,482 125,588 406,627
Other deposits 687,882 -0- -0- 687,882
Short-term borrowings 174,728 16,554 4,074 195,356
Total interest-sensitive
liabilities 1,029,167 131,036 129,662 1,289,865
Gap $ (492,908) $ (4,634) $115,491 $ (382,051)
ISA/ISL 0.52 0.96 1.89 0.70
Gap/Total assets 21.11% 0.20% 4.95% 16.36%
1993
Cumulative
0-90 Days 91-180 Days 181-365 Days 0-365 Days
Loans $ 419,308 $ 90,940 $156,029 $ 666,277
Investments 188,531 52,148 75,969 316,648
Other interest-earning assets 3,607 198 297 4,102
Total interest-sensitive
assets 611,446 143,286 232,295 987,027
Certificates of deposit 183,780 140,082 144,903 468,765
Other deposits 584,845 7,865 9,963 602,673
Short-term borrowings 160,205 9,578 3,707 173,490
Total interest-sensitive
liabilities 928,830 157,525 158,573 1,244,928
Gap $ (317,384) $(14,239) $ 73,722 $ (257,901)
ISA/ISL 0.66 0.91 1.46 0.79
Gap/Total assets 14.09% 0.63% 3.27% 11.45%
</TABLE>
19<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis
Final loan maturities and rate sensitivity of the loan portfolio excluding
consumer installment and mortgage loans and before unearned income at
December 31, 1994 were as follows (Dollar Amounts in Thousands):
Within One One to After
Year 5 Years 5 Years Total
Commercial and industrial $ 71,664 $ 45,667 $ 30,691 $148,022
Financial institutions -0- 80 -0- 80
Real estate-construction 16,083 4,887 2,161 23,131
Real estate-commercial 33,022 98,469 136,926 268,417
Other 7,951 9,650 14,409 32,010
Totals $128,720 $158,753 $184,187 $471,660
Loans at fixed interest rates 94,107 80,906
Loans at variable interest rates 64,646 103,281
Totals $158,753 $184,187
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.
Therefore, to more precisely measure the impact of interest rate changes on
the Corporation's net interest margin, 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 December 31, 1994, indicated that a 300 basis point movement
in interest rates in either direction would not have a significant impact on
the Corporation's anticipated net interest income over the next twelve
months.
Credit Review
Maintaining a high quality loan portfolio is of great importance to the
Corporation. The Corporation manages the risk characteristics of the loan
portfolio through the use of prudent lending policies and procedures and
monitors risk through a periodic review process provided by external
auditors, internal auditors, regulatory authorities and our loan review
staff. These reviews include the analysis of credit quality,
diversification of industry, compliance to policies and procedures, and an
analysis of current economic conditions.
In the management of its credit portfolio, the Corporation emphasizes the
importance of the collectibility of loans and leases as well as asset and
earnings diversification. The Corporation immediately recognizes as a loss,
all credits judged to be uncollectible and has established a reserve for
possible credit losses that may exist in the portfolio at a point in time,
but have not been specifically identified.
The Corporation's written lending policy requires certain underwriting
standards to be met prior to funding any loan, including requirements for
credit analysis, collateral value coverage, documentation, and terms. The
principal factor used to determine potential borrowers' creditworthiness is
business cash flows or consumer income available to service debt payments.
Secondary sources of repayment, including collateral or guarantees, are
frequently obtained. The Corporation's subsidiary banks generally lend
within the market served by the bank.
20<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis
The lending policy provides limits for individual and bank committees
lending authorities. In addition to the bank loan approval process,
requests for borrowing relationships which will exceed one million dollars
must also be approved by the Corporation's Credit Committee. This Committee
consists of a minimum of three members of the Corporation's board of
directors.
Commercial and industrial loans are generally granted to small and middle
market customers for operating, expansion or asset acquisition purposes.
Operating cash flows of the business enterprise are identified as the
principal source of repayment, with business assets held as collateral.
Collateral margins and loan terms are based upon the purpose and structure
of the transaction as set forth in loan policy.
Commercial real estate loans are granted for the acquisition or improvement
of real property. Generally, commercial real estate loans do not exceed 75%
of the appraised value of property pledged to secure the transaction.
Repayment of such loans are expected from the operations of the subject real
estate and are carefully analyzed prior to approval.
Real estate construction loans are granted for the purposes of constructing
improvements to real property, both commercial and residential. On-site
inspections are conducted by qualified individuals prior to periodic
permanent project financing, which is generally committed prior to the
commencement of construction financing.
Real estate loans secured by 1-4 family residential housing properties are
granted subject to statutory limits in effect for each bank regarding the
maximum percentage of appraised value of the mortgaged property.
Residential loan terms are normally established in compliance with secondary
market requirements. Residential mortgage portfolio interest rate risk is
controlled by secondary market sales, variable interest rate loans and
balloon maturities.
Loans to individuals represent financing extended to consumers for personal
or household purposes, including automobile financing, education, home
improvement, and personal expenditures. These loans are granted in the form
of installment, credit card, or revolving credit transactions. Consumer
creditworthiness is evaluated on the basis of ability to repay, stability of
income sources, and past credit history.
Since all identified losses are immediately charged off, no portion of the
reserve is restricted to any individual credit or groups of credits, and the
entire reserve is available to absorb any and all credit losses. However,
for analytical purposes, the following table sets forth an allocation of the
reserve for possible loan losses at December 31 according to the categories
indicated:
<TABLE>
<CAPTION>
Allocation of the Reserve for Possible Loan Losses
(Dollar Amounts in Thousands)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, industrial, financial,
agricultural and other $ 2,443 $ 2,541 $ 5,488 $ 4,579 $ 2,424
Real estate-construction 215 146 98 124 71
Real estate-commercial 3,328 3,389 1,750 1,405 1,293
Real estate-residential 4,532 4,151 3,186 1,481 1,559
Loans to individuals 2,417 1,978 1,991 1,343 1,893
Lease financing receivables 243 552 182 139 129
Unallocated 4,159 3,726 3,133 1,610 1,908
Total $17,337 $16,483 $15,828 $10,681 $9,277
Reserve as percentage
of average total loans 1.35% 1.39% 1.45% 1.09% 0.97%
</TABLE>
21<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis
Other than those described below, there are no material credits that
management has serious doubts as to the borrower's ability to comply with
the present loan repayment terms. The following table identifies
nonperforming loans at December 31. A loan is placed in a nonaccrual status
at the time when ultimate collectibility of principal or interest, wholly or
partially, is in doubt. Past due loans are those which were contractually
past due 90 days or more as to interest or principal payments but are well
secured and in the process of collection. Renegotiated loans are those
which terms have been renegotiated to provide a reduction or deferral of
principal or interest as a result of the deteriorating financial position of
the borrower.
<TABLE>
<CAPTION>
Nonperforming Assets and Effect on Interest
Income Due to Nonaccrual
(Dollar Amounts in Thousands)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual basis $ 9,575 $ 9,672 $ 9,328 $ 6,089 $ 5,691
Past due loans 6,936 9,106 7,578 6,266 3,926
Renegotiated loans 733 1,413 1,229 1,086 3,185
Total nonperforming loans $17,244 $20,191 $18,135 $13,441 $12,802
Nonperforming loans as a percentage of
total loans 1.25% 1.67% 1.56% 1.33% 1.32%
Reserve as percentage of nonperforming
loans 100.54% 81.64% 87.28% 79.47% 72.47%
Other real estate owned $ 2,269 $5,590 $4,894 $2,599 $1,471
Gross income that would have been
recorded at original rates $ 1,085 $ 929 $ 1,080 $ 579 $ 711
Interest that was reflected in income 164 204 139 41 166
Net reduction to interest income due to
nonaccrual $ 921 $ 725 $ 941 $ 538 $ 545
</TABLE>
The reduction of income due to renegotiated loans was less than $50 thousand
in any year presented.
Although the ratio of the reserve for possible loan losses as a percentage
of nonperforming loans is lower than the Corporation's peers, other factors
should be considered such as historical loan losses and nonperforming loan
levels. These were favorable when compared to peer group levels over the
past five years. Management believes that the reserve for possible loan
losses and nonperforming loans remained safely within acceptable levels
during 1994.
In May 1993, the Financial Accounting Standards Board issued Statement
No. 114 "Accounting by Creditors for Impairment of a Loan" ("FAS No. 114")
which was amended in October 1994 by Statement No. 118 "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures"
("FAS No. 118") which addresses the disclosure of certain loans where it is
probable that the creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Additionally, FAS
No. 118 requires the disclosure of how the creditor recognizes interest
income related to these impaired loans. The Corporation is required to
adopt FAS No. 114 as amended by FAS No. 118 in its fiscal year beginning
January 1, 1995. While management has not definitely concluded as to the
effect of implementation, it is not expected to have a material impact on
the Corporation's financial condition or results of operations.
22<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis
Capital Resources
Equity capital decreased $3.8 million in 1994. Dividends declared decreased
equity by $13.3 million. The retained net income remains in permanent
capital to fund future growth and expansion. Payments by the Corporation's
Employee Stock Ownership Plan ("ESOP") to reduce debt it incurred to acquire
the Corporation's common stock for future distribution as employee
compensation, net of additional advances, decreased equity capital by $747
thousand. The market value adjustment to securities available for sale
deducted $18.4 million from capital while the tax benefit of dividends paid
to the ESOP increased equity by $81 thousand and amounts paid to fund the
discount on reinvested dividends and optional cash payments reduced equity
by $212 thousand.
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 has issued risk-based capital adequacy guidelines
which went into effect in stages through 1992. The risk-based capital
standard is 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 certain 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 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.
The table below presents the Corporation's capital position at December 31,
1994:
Percent
Amount of Adjusted
(in thousands) Assets
Tier I Capital $226,799 17.1
Risk-Based Requirement 53,166 4.0
Total Capital 243,758 18.3
Risk-Based Requirement 106,331 8.0
Minimum Leverage Capital 226,799 9.8
Minimum Leverage Requirement 92,410 4.0
Inflation and Changing Prices
Management is aware of the impact inflation has on interest rates and
therefore the impact it can have on a bank's performance. The ability of a
financial institution to cope with inflation can only be determined by
analysis and monitoring of its asset and liability structure. The
Corporation monitors its asset and liability position with particular
emphasis on the mix of interest-sensitive assets and liabilities in order to
reduce the effect of inflation upon its performance. However, it must be
remembered that the asset and liability structure of a financial institution
is substantially different from an industrial corporation in that virtually
23<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis
Inflation and Changing Prices (Continued)
all assets and liabilities are monetary in nature, meaning that they have
been or will be converted into a fixed number of dollars regardless of
changes in general price levels. Examples of monetary items include cash,
loans and deposits. Nonmonetary items are those assets and liabilities
which do not gain or lose purchasing power solely as a result of general
price level changes. Examples of nonmonetary items are premises and
equipment.
Inflation can have a more direct impact on categories of noninterest
expenses such as salaries and wages, supplies and employee benefit costs.
These expenses are very closely monitored by management for both the effects
of inflation and increases relating to such items as staffing levels, usage
of supplies and occupancy costs.
24
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Consolidated Balance Sheets
(Dollar Amounts in Thousands)
December 31,
1994 1993
Assets
Cash and due from banks on demand...........$ 66,055 $ 55,767
Interest-bearing deposits with banks........ 13,686 20,534
Federal funds sold.......................... -0- 1,600
Securities available for sale............... 443,189 465,224
Securities held to maturity, market value
$348,074 in 1994 and $450,451 in 1993..... 370,498 443,942
Loans....................................... 1,422,320 1,248,934
Unearned income........................... (44,526) (37,825)
Reserve for possible loan losses.......... (17,337) (16,483)
Net loans............................ 1,360,457 1,194,626
Property and equipment...................... 29,196 27,000
Other real estate owned..................... 2,269 5,590
Other assets................................ 49,571 38,553
Total assets.........................$2,334,921 $2,252,836
Liabilities
Deposits (All Domestic):
Noninterest-bearing.......................$ 199,172 $ 181,024
Interest-bearing.......................... 1,681,888 1,641,061
Total deposits....................... 1,881,060 1,822,085
Short-term borrowings....................... 201,706 176,184
Other liabilities........................... 19,424 18,294
Long-term debt.............................. 7,596 7,363
Total liabilities.................... 2,109,786 2,023,926
Shareholders' Equity
Preferred stock, $1 par value per
share, 3,000,000 shares authorized
and unissued.............................. -0- -0-
Common stock, $1 par value per share,
100,000,000 shares authorized, 22,436,628
shares issued and 22,430,728 outstanding
in 1994; 22,516,705 shares issued and
22,418,497 shares outstanding in 1993...... 22,437 22,517
Additional paid-in capital.................. 77,964 79,094
Retained earnings........................... 146,814 131,380
Unrealized gain (loss) on securities
available for sale, net of taxes.......... (16,802) 1,584
Treasury Stock (5,900 and 98,208 shares at
December 31, 1994 and 1993, respectively
at cost).................................. (82) (1,216)
Unearned ESOP shares........................ (5,196) (4,449)
Total shareholders' equity........... 225,135 228,910
Total liabilities and
shareholders' equity..........$2,334,921 $2,252,836
The accompanying notes are an integral part of these consolidated
financial statements.
25
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Consolidated Statements of Income
(Dollar Amounts in Thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans................ $110,213 $105,459 $105,663
Interest and dividends on investments:
Taxable interest........................ 44,187 44,068 41,462
Interest exempt from Federal
income taxes.......................... 3,430 3,068 4,171
Dividends............................... 1,028 852 513
Interest on Federal funds sold............ 186 268 795
Interest on bank deposits................. 600 1,275 3,002
Total interest income................. 159,644 154,990 155,606
INTEREST EXPENSE
Interest on deposits..................... 61,185 63,067 71,087
Interest on short-term borrowings........ 7,394 3,641 1,753
Interest on long-term debt............... 523 456 455
Total interest expense............... 69,102 67,164 73,295
Net interest income........................ 90,542 87,826 82,311
Provision for possible loan losses....... 2,896 2,920 3,744
Net interest income after provision for
possible loan losses..................... 87,646 84,906 78,567
OTHER INCOME
Net securities gains..................... 5,536 3,528 955
Trust income............................. 2,226 2,332 2,105
Service charges on deposit accounts...... 5,382 5,208 4,766
Other income............................. 3,027 3,420 2,491
Total other income................... 16,171 14,488 10,317
OTHER EXPENSES
Salaries and employee benefits........... 30,035 29,369 26,214
Net occupancy expense.................... 4,238 4,165 3,755
Furniture and equipment expense.......... 3,859 4,085 3,579
FDIC expense............................. 4,151 4,051 3,787
Other operating expenses................. 18,572 17,735 17,622
Total other expenses................. 60,855 59,405 54,957
Income before taxes and cumulative
effect of change in accounting
method................................... 42,962 39,989 33,927
Applicable income taxes................ 14,226 12,444 9,393
Net income before cumulative effect
of change in accounting method........... 28,736 27,545 24,534
Cumulative effect of change in
accounting method....................... -0- 865 -0-
Net income................................. $28,736 $28,410 $24,534
Average Shares Outstanding................. 22,432,062 22,416,360 21,983,845
Per share data:
Net income before cumulative effect
of change in accounting method......... $1.28 $1.23 $1.12
Cumulative effect of change in
accounting method...................... 0.00 0.04 0.00
Net income............................... $1.28 $1.27 $1.12
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
26<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Operating Activities
Net income............................................ $28,736 $28,410 $24,534
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses................. 2,896 2,920 3,744
Depreciation and amortization...................... 5,126 5,086 3,906
Net gains on sales of assets....................... (5,555) (4,050) (549)
Decrease (increase) in interest receivable......... (1,123) (2) 2,527
Increase (decrease) in interest payable............ 631 (986) (2,640)
Increase (decrease) in income taxes payable........ 135 945 (669)
Change in deferred taxes........................... 849 (1,181) (226)
Other - net........................................ (3,917) (697) (3,370)
Net cash provided by operating activities....... 27,778 30,445 27,257
Investing Activities
Transactions with securities held to maturity:
Sales.............................................. 7,476 99,479 19,280
Maturities and redemptions......................... 104,915 341,171 175,873
Purchases of investment securities................. (70,246) (640,777) (290,820)
Transactions with securities available for sale:
Sales.............................................. 51,427 -0- -0-
Maturities and redemptions......................... 73,296 -0- -0-
Purchases of investment securities................. (94,197) -0- -0-
Proceeds from sales of loans and other assets......... 13,488 20,406 17,866
Acquisition of affiliate, net of cash received........ -0- -0- 2,350
Net decrease in time deposits with banks.............. 6,848 34,653 27,896
Net increase in loans................................. (178,299) (66,864) (15,392)
Purchases of premises and equipment................... (5,578) (4,099) (4,596)
Net cash used by investing activities........... (90,870) (216,031) (67,543)
Financing Activities
Proceeds from issuance of long-term debt.............. -0- 202 2,500
Repayments of long-term debt.......................... (515) (505) (179)
Tax benefit of ESOP dividend.......................... 81 84 119
Discount on dividend reinvestment plan purchases...... (212) (159) (124)
Dividends paid........................................ (10,878) (8,571) (7,191)
Dividends paid by pooled subsidiaries prior to merger. (1,328) (2,351) (1,158)
Proceeds of issuance of stock by pooled company....... -0- -0- 13,672
Acquisition of treasury stock......................... (82) (973) (447)
Reissuance of treasury stock by pooled company........ 113 113 -0-
Net increase in deposits.............................. 59,079 33,940 69,789
Net increase (decrease) in Federal funds purchased.... 20,220 45,955 (10,550)
Net increase in other short-term borrowings........... 5,302 74,355 18,680
Net cash provided by financing activities....... 71,780 142,090 85,111
Net increase (decrease) in cash and cash
equivalents................................... 8,688 (43,496) 44,825
Cash and cash equivalents at January 1.................. 57,367 100,863 56,038
Cash and cash equivalents at December 31................ $66,055 $ 57,367 $100,863
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
27<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Consolidated Statements of Changes in Shareholders' Equity
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on
Additional Securities Unearned Total
Common Paid-in Retained Available ESOP Treasury Shareholders'
Stock Capital Earnings For Sale Shares Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991........... $20,899 $64,011 $100,119 $ (418) $(5,627) $ -0- $178,984
Net income............................ -0- -0- 24,534 -0- -0- -0- 24,534
Cash dividends declared............... -0- -0- (9,003) -0- -0- -0- (9,003)
Cash dividends declared by pooled
subsidiaries prior to merger......... -0- -0- (1,492) -0- -0- -0- (1,492)
Decrease in unrealized loss on
equity securities.................... -0- -0- -0- 418 -0- -0- 418
Tax benefit on ESOP dividends......... -0- -0- 119 -0- -0- -0- 119
Decrease in unearned ESOP shares...... -0- -0- -0- -0- 714 -0- 714
Discount on dividend reinvestment
plan purchases....................... -0- (124) -0- -0- -0- -0- (124)
Treasury stock acquired by pooled
subsidiary........................... -0- -0- -0- -0- -0- (447) (447)
Stock issued to acquire subsidiary.... 1,618 15,366 -0- -0- -0- -0- 16,984
Balance at December 31, 1992........... 22,517 79,253 114,277 -0- (4,913) (447) 210,687
Net income............................ -0- -0- 28,410 -0- -0- -0- 28,410
Cash dividends declared............... -0- -0- (8,944) -0- -0- -0- (8,944)
Cash dividends declared by pooled
subsidiaries prior to merger......... -0- -0- (2,356) -0- -0- -0- (2,356)
Increase in unrealized gain on
securities available for sale, net
of tax effect........................ -0- -0- -0- 1,584 -0- -0- 1,584
Tax benefit on ESOP dividends......... -0- -0- 84 -0- -0- -0- 84
Decrease in unearned ESOP shares...... -0- -0- -0- -0- 464 -0- 464
Discount on dividend reinvestment
plan purchases....................... -0- (159) -0- -0- -0- -0- (159)
Treasury stock acquired by pooled
subsidiary........................... -0- -0- -0- -0- -0- (973) (973)
Treasury stock reissued by pooled
subsidiary........................... -0- -0- (91) -0- -0- 204 113
Balance at December 31, 1993........... 22,517 79,094 131,380 1,584 (4,449) (1,216) 228,910
Net income............................ -0- -0- 28,736 -0- -0- -0- 28,736
Cash dividends declared............... -0- -0- (11,950) -0- -0- -0- (11,950)
Cash dividends declared by pooled
subsidiaries prior to merger......... -0- -0- (1,328) -0- -0- -0- (1,328)
Change in market value of securities
available for sale, net of tax
effect.............................. -0- -0- -0- (18,386) -0- -0- (18,386)
Tax benefit on ESOP dividends......... -0- -0- 81 -0- -0- -0- 81
Increase in unearned ESOP shares...... -0- -0- -0- -0- (747) -0- (747)
Discount on dividend reinvestment
plan purchases....................... -0- (212) -0- -0- -0- -0- (212)
Treasury stock acquired............... -0- -0- -0- -0- -0- (82) (82)
Treasury stock reissued by pooled
subsidiary........................... -0- -0- (105) -0- -0- 218 113
Treasury stock cancelled in merger.... (80) (918) -0- -0- -0- 998 -0-
Balance at December 31, 1994........... $22,437 $77,964 $146,814 $(16,802) $(5,196) $ (82) $225,135
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
28
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
NOTE 1--Statement of Accounting Policies
General
The following summary of accounting and reporting policies is presented to
aid the reader in obtaining a better understanding of the financial
statements and related financial data of First Commonwealth Financial
Corporation (the "Corporation") and its subsidiaries contained in this
report. Such policies conform to generally accepted accounting principles
and to general practice for financial institutions.
The Corporation and its subsidiaries are on the accrual basis of accounting
except for certain trust related revenues which are recorded on a cash
basis. Recording income from such activities on a cash basis does not
materially affect net income.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Corporation and its wholly-owned subsidiaries. All material
intercompany transactions have been eliminated in consolidation.
Investments of 20 to 50 percent of the outstanding common stock of investees
are accounted for using the equity method of accounting.
Securities
Debt securities that the Corporation has the positive intent and ability to
hold to maturity are classified as securities held-to-maturity and are
reported at amortized cost. Debt and equity securities that are bought and
held principally for the purpose of selling them in the near term are to be
classified as trading securities and reported at fair value, with unrealized
gains and losses included in earnings. Debt and equity securities not
classified as either held-to-maturity securities or trading securities are
classified as securities available-for-sale and are reported at fair value,
with unrealized gains and losses excluded from earnings and reported as a
separate component of shareholders' equity, net of deferred taxes.
The Corporation had securities classified as either held-to-maturity or
available-for-sale. The Corporation does not engage in trading activities.
Net gain or loss on the sale of securities was determined by using the
specific identification method.
Prior to the implementation of Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities
("FAS No. 115"), effective December 31, 1993, investment securities were
stated at cost adjusted for amortization of premium and accretion of
discount. Marketable equity securities were carried at the lower of
aggregate cost or market value.
Loans
Loans are carried at the principal amount outstanding. Unearned income on
installment loans is taken into income on a declining basis which results in
an approximately level rate of return over the life of the loan. Interest
is accrued as earned on nondiscounted loans. When a loan becomes past due
and doubt exists as to the ultimate collection of principal and interest,
the accrual of income is discontinued and is only recognized at the time
payment is received.
29<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 1--Statement of Accounting Policies (Continued)
Loans (Continued)
Renegotiated loans are those loans on which concessions in terms have been
granted because of a borrower's financial difficulty. Interest is generally
accrued on such loans in accordance with the new terms.
Loan Fees
Loan origination and commitment fees, net of associated direct costs, are
deferred and the net amount is amortized as an adjustment to the related
loan yield on the interest method, generally over the contractual life of
the related loans or commitments.
Other Real Estate Owned
Real estate, other than bank premises, is recorded at the lower of cost or
fair value less selling costs at the time of acquisition. Expenses related
to holding the property, net of rental income, are generally charged against
earnings in the current period. Other real estate also includes properties
that have in substance been foreclosed. At December 31, 1994 and 1993 these
properties did not represent a significant amount.
Reserve for Possible Loan Losses
The reserve for possible loan losses represents management's estimate of an
amount adequate to provide for losses which may be incurred on loans
currently held. Management determines the adequacy of the reserve based on
historical patterns of loan charge-offs and recoveries, the relationship of
the reserve to outstanding loans, industry experience, current economic
trends and other factors relevant to the collectibility of loans currently
in the portfolio.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation is computed on the straight-line and accelerated
methods over the estimated useful life of the asset. Charges for
maintenance and repairs are expensed as incurred. Where a lease is
involved, amortization is charged over the term of the lease or the
estimated useful life of the improvement, whichever is shorter.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 ("FAS No. 109"), Accounting for
Income Taxes (see NOTE 14). Under the asset and liability method utilized
by FAS No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amount of existing assets and liabilities and their
respective tax bases given the provisions of the enacted tax laws. Deferred
tax assets are reduced, if necessary, by the amount of such benefits that
are not expected to be realized based upon available evidence.
Effective January 1, 1993, the Corporation adopted FAS No. 109 and has
reported the cumulative effect of that change in method of accounting for
income taxes in the 1993 consolidated statement of income.
30<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 1--Statement of Accounting Policies (Continued)
Cash Flow Statement
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, and Federal funds sold. Generally, Federal
funds are sold for one-day periods.
Supplemental Disclosures
Cash paid during the year for:
1994 1993 1992
Interest $68,576 $68,379 $76,062
Income taxes $13,234 $11,334 $10,402
Noncash Investing and Financing Activities
The Corporation borrowed $1,730 in 1994 and $250 in 1993 and concurrently
loaned these amounts to the First Commonwealth Financial Corporation
Employee Stock Ownership Plan Trust ("ESOP") on identical terms. The loan
has been recorded as long-term debt on the Corporation's books and the
offset was recorded as a reduction in common shareholders' equity. Loan
payments in the amount of $983 in 1994 and $714 in each of the two years
ending in 1993 were made by the ESOP thereby reducing the outstanding amount
related to unearned ESOP shares to $5,196 at December 31, 1994.
Earnings Per Common Share
Earnings per share have been calculated on the weighted average number of
common shares outstanding during each year, restated to reflect poolings of
interests. Additionally, average number of shares has been restated to
reflect the two-for-one stock split effected in the form of a 100% stock
dividend declared on January 18, 1994.
NOTE 2--Business Combination
Effective September 29, 1994 the Corporation acquired all of the outstanding
common shares of Reliable Financial Corporation ("Reliable"), a savings and
loan holding company headquartered in Bridgeville, Pennsylvania. Each of
the 1,410,194 outstanding shares were exchanged for 1.6 shares of the
Corporation's common stock. Effective September 27, 1994 the Corporation
acquired all of the outstanding common shares of United National
Bancorporation ("United"), a bank holding company headquartered in
Chambersburg, Pennsylvania. Each of the 769,147 outstanding shares were
exchanged for two shares of the Corporation's common stock. The mergers
were accounted for as poolings of interests, and accordingly, all financial
statements were restated as though the mergers had occurred at the beginning
of the earliest period presented.
31<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 2--Business Combination (Continued)
The following table reconciles net interest income and net income as
previously reported and as restated for the mergers. Results of the six
month period ended June 30, 1994 were unaudited.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Years Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Net interest income as previously reported:
Corporation $37,016 $73,725 $69,334
United 3,858 7,878 6,769
Reliable 2,968 6,223 6,208
Net interest income as restated $43,842 $87,826 $82,311
Net income as previously reported:
Corporation $10,706 $23,190 $20,588
United 736 1,820 1,418
Reliable 1,557 3,400 2,528
Net income as restated $12,999 $28,410 $24,534
</TABLE>
Effective December 31, 1993 the Corporation acquired all of the outstanding
common shares of Peoples Bank of Western Pennsylvania, a state chartered
bank headquartered in New Castle, Pennsylvania. Each of the 375,000
outstanding shares of common stock were exchanged for two shares of the
Corporation's common stock. The merger was accounted for as a pooling of
interests, and accordingly, all financial statements were restated as though
the merger had occurred at the beginning of the earliest period presented.
Effective April 30, 1992, the Corporation acquired all of the outstanding
common shares of Central Bank ("Central"), a state chartered bank
headquartered in Hollidaysburg, Pennsylvania, for 808,765 shares of the
Corporation's common stock and $3,950 in cash. The acquisition was
accounted for as a purchase transaction, whereby the identifiable tangible
and intangible assets and liabilities of Central have been recorded at their
fair values at the acquisition date. Goodwill of $4,858 and core deposit
intangibles of $2,873 acquired in the transaction are being amortized on a
straight-line basis over respective periods of fifteen and ten years. Under
the purchase method of accounting, the results of operations of Central from
the date of acquisition were included in the financial statements.
NOTE 3--Cash and Due From Banks on Demand
Regulations of the Board of Governors of the Federal Reserve System impose
uniform reserve requirements on all depository institutions with transaction
accounts (checking accounts, NOW accounts, etc.). Reserves are maintained
in the form of vault cash or a noninterest-bearing balance held with the
Federal Reserve Bank. The subsidiary banks maintained with the Federal
Reserve Bank average balances of $6,359 during 1994 and $4,485 during 1993.
32<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 4--Securities Available For Sale
Below is an analysis of the amortized cost and approximate fair values of
securities available for sale at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
Gross Gross Approximate Gross Gross Approximate
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $116,618 $ 31 $ (5,094) $111,555 $103,253 $ 862 $ (125) $103,990
Obligations of U.S.
Government Corporations
and Agencies:
Mortgage Backed Securities 265,365 123 (16,581) 248,907 285,854 2,507 (978) 287,383
Other 61,367 40 (3,398) 58,009 49,726 323 (133) 49,916
Obligations of States and
Political Subdivisions 128 -0- -0- 128 97 -0- -0- 97
Corporate Securities 3,228 5 (15) 3,218 4,688 50 -0- 4,738
Other Mortgage Backed
Securities 7,348 1 (60) 7,289 6,327 25 (9) 6,343
Total Debt Securities 454,054 200 (25,148) 429,106 449,945 3,767 (1,245) 452,467
Equities 14,822 -0- (739) 14,083 12,841 -0- (84) 12,757
Total Securities
Available for Sale $468,876 $200 $(25,887) $443,189 $462,786 $3,767 $(1,329) $465,224
</TABLE>
Mortgage backed securities include mortgage backed obligations of the U.S.
Government agencies and corporations, mortgage backed securities issued by
other organizations and other asset backed securities. These obligations
have contractual maturities ranging from 1.5 to 32 years and have an
anticipated average life to maturity ranging from less than one year to 20
years.
The amortized cost and estimated market value of debt securities at
December 31, 1994, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or repay obligations with or without call or
prepayment penalties.
Estimated
Amortized Fair
Cost Value
Due within 1 year $ 21,780 $ 21,473
Due after 1 but within 5 years 148,687 141,034
Due after 5 but within 10 years 10,375 9,915
Due after 10 years 499 488
181,341 172,910
Mortgage backed securities 272,713 256,196
Total debt securities $454,054 $429,106
Proceeds from the sales of securities available for sale were $51,427 during
1994. Gross gains of $5,610 and gross losses of $90 were realized on those
sales.
33<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 5--Securities Held to Maturity
Below is an analysis of the amortized cost and approximate fair values of
debt securities held to maturity at December 31:
<TABLE>
<CAPTION>
1994 1993
Gross Gross Approximate Gross Gross Approximate
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 4,934 $-0- $ (41) $ 4,893 $ 13,135 $ 50 $ -0- $ 13,185
Obligations of U.S.
Government Corporations
and Agencies:
Mortgage Backed Securities 181,032 36 (13,206) 167,862 226,794 994 (805) 226,983
Other 100,047 19 (6,056) 94,010 101,927 668 (146) 102,449
Obligations of States and
Political Subdivisions 69,658 368 (3,231) 66,795 76,831 1,706 (348) 78,189
Debt Securities Issued By
Foreign Governments 743 -0- (4) 739 995 23 -0- 1,018
Corporate Securities 6,277 8 (128) 6,157 12,021 476 (74) 12,423
Other Mortgage Backed
Securities 7,807 -0- (189) 7,618 9,791 169 -0- 9,960
Total Debt Securities $370,498 $431 $(22,855) $348,074 $441,494 $4,086 $(1,373) $444,207
</TABLE>
Mortgage backed securities include mortgage backed obligations of the U.S.
Government agencies and corporations, mortgage backed securities issued by
other organizations and other asset backed securities. These obligations
have contractual maturities ranging from 1.5 to 32 years and have an
anticipated average life to maturity ranging from less than one year to 20
years.
The amortized cost and estimated market value of debt securities at
December 31, 1994, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or repay obligations with or without call or
prepayment penalties.
Estimated
Amortized Market
Cost Value
Due within 1 year $ 17,628 $ 17,560
Due after 1 but within 5 years 120,891 114,574
Due after 5 but within 10 years 39,899 37,394
Due after 10 years 3,241 3,067
181,659 172,595
Mortgage backed securities 188,839 175,479
Total debt securities $370,498 $348,074
34<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 5--Securities Held to Maturity (Continued)
Proceeds from the sales of securities held to maturity were $7,476 in 1994.
Gross gains of $42 and gross losses of $26 were recognized during 1994.
Most of these securities were called and sold within three months of the
call date. One security was sold because of a significant deterioration of
the issuer's creditworthiness. Proceeds from the sale of securities held to
maturity were $99,479 and $19,280 during 1993 and 1992, respectively. Gross
gains of $3,545 and $1,099 and gross losses of $17 and $144 were realized on
those sales during 1993 and 1992, respectively.
At December 31, 1993 securities held to maturity included marketable equity
securities with a cost basis of $970 and an unrealized gain of $3,796 along
with nonmarketable equity securities in the amount of $1,478. Nonmarketable
equity securities were primarily Federal Home Loan Bank stock and Federal
Reserve Bank stock. These equities had not been classified as securities
available for sale since they were holdings of Reliable and United prior to
the merger and neither entity had implemented FAS No. 115 until after
December 31, 1993.
Securities held to maturity and available for sale with a book value of
$336,273 and $263,809 were pledged at December 31, 1994 and 1993,
respectively, to secure public deposits and for other purposes required or
permitted by law.
NOTE 6--Loans (all domestic)
Loans at year end were divided among these general categories:
December 31,
1994 1993
Commercial, financial,
agricultural and other $ 180,373 $ 179,227
Real estate loans:
Construction and land
development 23,131 12,980
1-4 Family dwellings 587,734 511,889
Other real estate loans 268,417 238,864
Loans to individuals for household,
family and other personal
expenditures 332,167 279,357
Leases, net of unearned income 30,498 26,617
Subtotal 1,422,320 1,248,934
Unearned income (44,526) (37,825)
Total loans and leases $1,377,794 $1,211,109
Most of the Corporation's business activity was with customers located
within Pennsylvania. The portfolio is well diversified, and as of December
31, 1994 and 1993, there were no significant concentrations of credit.
35
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 7--Reserve for Possible Loan Losses
Description of changes:
1994 1993 1992
Reserve balance at January 1 $16,483 $15,828 $10,681
Additions:
Recoveries of previously
charged off loans 1,134 1,588 1,151
Provision charged to operating
expense 2,896 2,920 3,744
From acquisition -0- -0- 4,501
Deductions:
Loans charged off 3,176 3,853 4,249
Reserve balance at December 31 $17,337 $16,483 $15,828
In May 1993, the Financial Accounting Standards Board issued Statement
No. 114 "Accounting by Creditors for Impairment of a Loan" ("FAS No. 114")
which was amended in October 1994 by Statement No. 118 "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures"
("FAS No. 118") which addresses the disclosure of certain loans where it is
probable that the creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Additionally, FAS
No. 118 requires the disclosure of how the creditor recognizes interest
income related to these impaired loans. The Corporation is required to
adopt FAS No. 114, as amended by FAS No. 118, in its fiscal year beginning
January 1, 1995. While management has not definitely concluded as to the
effect of implementation, it is not expected to have a material impact on
the Corporation's financial condition nor results of operations.
NOTE 8--Financial Instruments with Off-Balance-Sheet Risk
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financial needs of its
customers. These financial instruments include commitments to extend
credit, standby letters of credit and commercial letters of credit. Those
instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The
contract or notional amount of those instruments reflects the extent of
involvement the Corporation has in particular classes of financial
instruments.
As of December 31, 1994 the Corporation does not own or trade any other
financial instruments with significant off-balance-sheet risk including
derivatives such as futures, forwards, interest rate swaps, option contracts
and the like, although such instruments may be appropriate to use in the
future to manage interest rate risk.
36<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 8--Financial Instruments with Off-Balance-Sheet Risk (Continued)
The Corporation's exposure to credit loss in the event of nonperformance by
the other party of the financial instrument for commitments to extend
credit, standby letters of credit and commercial letters of credit written
is represented by the contract or notional amount of those instruments. The
Corporation uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. The
following table identifies the notional amount of those instruments at
December 31, 1994 and 1993.
1994 1993
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $212,751 $191,184
Standby letters of credit $ 18,505 $ 18,398
Commercial letters of credit $ 65 $ 65
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Corporation
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Corporation upon
extension of credit, is based on management's credit evaluation of the
counter-party. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, and income-producing commercial
properties.
Standby letters of credit and commercial letters of credit written are
conditional commitments issued by the Corporation to guarantee the
performance of a customer to a third party. Those guarantees are primarily
issued to support public and private borrowing arrangements. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
NOTE 9--Premises and Equipment
Premises and equipment are described as follows:
1994 1993
Land $ 4,453 $ 4,155
Buildings and improvements 28,818 26,013
Leasehold improvements 4,429 4,341
Furniture and equipment 24,988 23,677
Subtotal 62,688 58,186
Less accumulated depreciation and
amortization 33,492 31,186
Total premises and
equipment $29,196 $27,000
Depreciation and amortization related to premises and equipment was $3,499
in 1994, $3,393 and $2,996, in 1993 and 1992, respectively.
37 <PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 10--Interest-Bearing Deposits
Components of interest-bearing deposits at December 31 were as follows:
1994 1993
NOW and Super NOW accounts $ 223,915 $ 225,610
Savings and MMDA accounts 463,906 495,591
Time deposits 994,067 919,860
Total interest-bearing deposits $1,681,888 $1,641,061
Included in time deposits at December 31 were certificates of deposit in
denominations of $100 or more maturing as follows:
1994 1993
3 months or less $ 37,968 $ 21,229
3 to 6 months 10,191 16,078
6 to 12 months 17,885 17,996
Over 12 months 61,841 48,645
Total $127,885 $103,948
Interest expense related to $100 or greater certificates of deposit amounted
to $6,148 in 1994, $5,750 in 1993, and $7,842 in 1992.
NOTE 11--Short-term Borrowings
Short-term borrowings at December 31 were as follows:
1994 1993
Ending Average Average Ending Average Average
Balance Balance Rate Balance Balance Rate
Federal funds
purchased $ 66,175 $ 54,222 4.39% $ 46,155 $ 23,085 3.10%
Borrowings from
FHLB 66,944 57,488 4.60 62,276 22,674 3.32
Securities sold
under agreements
to repurchase 61,564 49,359 4.18 48,185 45,428 4.22
Treasury, tax and
loan note option 7,023 7,860 3.88 19,568 8,756 2.91
Total $201,706 $168,929 4.38% $176,184 $99,943 3.64%
Maximum total at
any month-end $201,706 $176,184
38
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands, except per share data)
NOTE 11--Short-term Borrowings (Continued)
Interest expense on short-term borrowings for the years ended December 31 is
detailed below:
1994 1993 1992
Federal funds purchased $2,381 $ 715 $ 169
Borrowings from FHLB 2,646 753 -0-
Securities sold under agreements to
repurchase 2,062 1,918 1,231
Treasury, tax and loan note option 305 255 353
Total interest on
short-term borrowings $7,394 $3,641 $1,753
NOTE 12--Long-Term Debt
Long-term debt at December 31, 1994 follows:
Amount Rate
Bank subordinated notes due September, 1997 $ 716 8.38%
ESOP loan due September, 1997 1,964 80% of Prime
Bank loan due December, 1997 1,500 Prime
ESOP loan due March, 2001 2,232 Prime
ESOP loan due March, 2004 1,000 Prime
Mortgage note due October, 2003 184 6.26%
Total long-term debt $7,596
All subordinated notes are unsecured and equally subordinated in right of
payment to depositors and other creditors. The notes are redeemable at 102%
of principal until maturity, at the bank's option. The subordinated notes
do not provide for sinking fund obligations. Scheduled loan payments and
subordinated note maturities are summarized below:
1995 1996 1997 1998 1999 Thereafter
Loan payments $1,588 $1,589 $1,518 $520 $521 $1,144
Note maturities -0- -0- 716 -0- -0- -0-
Total $1,588 $1,589 $2,234 $520 $521 $1,144
NOTE 13--Common Share Commitments
At December 31, 1994 the Corporation had 100,000,000 common shares
authorized and 22,430,728 shares outstanding after reflecting the two-for-
one stock split effected in the form of a 100% stock dividend declared
January 18, 1994 and poolings of interests which occurred during 1994.
Outstanding shares were also reduced by treasury stock acquired. The
Corporation may be required to issue additional shares to satisfy common
share purchases related to the employee stock ownership plan described in
NOTE 15.
Treasury stock was acquired and consists of 5,900 of the Corporation's
shares at December 31, 1994. The Corporation purchased these shares at an
average price per share of $13.88. The Corporation intends to continue to
acquire treasury shares, so long as favorable market conditions exist, until
a total of 117,422 shares has been acquired. These treasury shares are
expected to be reissued upon exercise of various stock option plans assumed
by the Corporation in the merger transactions with Reliable and United.
39<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 14--Income Taxes
As discussed in NOTE 1, effective January 1, 1993 the Corporation adopted
FAS No. 109. As permitted under FAS No. 109, prior years' financial
statements have not been restated. The adoption of this statement resulted
in a cumulative benefit of $865 in 1993. This benefit was primarily due to
lower tax rates in the year that FAS No. 109 was adopted compared to the tax
rates in the prior years when the timing differences were recognized.
The income tax provision consists of:
1994 1993 1992
Current tax provision for income
exclusive of securities
transactions:
Federal $10,599 $11,228 $8,994
State 455 224 259
Securities transactions 2,323 1,308 344
Total current tax
provision 13,377 12,760 9,597
Deferred tax provision (credit) 849 (316) (204)
Total tax provision $14,226 $12,444 $9,393
Temporary differences between financial statement carrying amounts and tax
bases of assets and liabilities that represent significant portions of the
deferred tax assets (liabilities) at December 31, 1994 and 1993 were as
follows:
1994 1993
Deferred tax assets:
Reserve for possible loan losses $ 4,909 $ 4,521
Alternative minimum tax
carryforward 591 1,181
Unrealized loss on securities
available for sale 9,047 -0-
Other 352 362
Deferred tax liabilities:
Accumulated accretion
of bond discount (277) (278)
Unrealized gain on securities
available for sale -0- (851)
Lease financing deduction (3,429) (2,354)
Loan origination fees and costs (154) (572)
Accumulated depreciation (397) (303)
Basis difference in assets acquired (2,065) (2,191)
Other (167) (154)
Net deferred tax asset (liability) $ 8,410 $ (639)
Management does not feel a need to establish a valuation allowance against
the deferred tax asset because of the Corporation's ability to recover these
future deductions through carrybacks.
40
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 14--Income Taxes (Continued)
The total tax provision for financial reporting purposes differs from the
amount computed by applying the statutory income tax rate to income before
income taxes. The differences are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate $15,037 35.0 $13,997 35.0 $11,535 34.0
Increase (decrease)
resulting from:
Effect of
nontaxable
interest (1,643) (3.8) (1,922) (4.8) (2,472) (7.3)
Merger expenses 590 1.4 59 0.1 -0- -0-
State income taxes 566 1.3 204 0.5 230 0.7
Other (324) (0.8) 106 0.3 100 0.3
Total tax
provision $14,226 33.1 $12,444 31.1 $ 9,393 27.7
</TABLE>
The Corporation has not recognized a deferred tax liability for differences
resulting from the bad debt reserve for tax purposes prior to December 31,
1987 of Reliable, its savings bank subsidiary. Should amounts previously
claimed as bad debt deductions for Reliable be used for any purpose other
than to absorb bad debts or if the separate savings bank subsidiary is
eliminated (which is not currently anticipated), a tax liability of
approximately $1,369 would be incurred, using tax rates in effect as of
December 31, 1994.
NOTE 15--Retirement Plans
All employees with at least one year of service are eligible to participate
in the employee stock ownership plan ("ESOP"). Contributions to the plan
are determined by the board of directors, and are based upon a prescribed
percentage of the annual compensation of all participants. The ESOP
acquired 110,225 shares and 15,454 shares of the Corporation's common stock
in 1994 and 1993, respectively, at a corresponding cost of $1,730 and $250,
which the Corporation borrowed and concurrently loaned these amounts to the
ESOP. These amounts represent leveraged and unallocated shares, and
accordingly have been recorded as long-term debt and the offset as a
reduction of the common shareholders' equity (see NOTE 16). Contributions
to the plan were $1,070 in 1994, $622 in 1993 and $680 in 1992.
The Corporation also has a savings plan pursuant to the provisions of
section 401(k) of the Internal Revenue Code. Under the terms of the plan,
each participant will receive an automatic employer contribution to the plan
in an amount equal to 3% of compensation. Each participating employee may
contribute up to 5% of compensation to the plan which is matched by the
employer's contribution equal to 60% of the employee's contribution. The
401(k) plan expense was $1,137 in 1994, $1,181 in 1993 and $1,007 in 1992.
41<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 15--Retirement Plans (Continued)
Employees of United were covered by a noncontributory defined benefit plan
which covered substantially all of its employees. During 1994 $92 was
accrued to fund the plan. No contributions were made during 1993 and 1992.
The net periodic cost was $49 during 1994. The plan is expected to be
terminated during 1995 and the employees will be included in the
Corporation's employee stock ownership plan and 401(k) plan. At December
31, 1994 there were sufficient assets to cover the entire benefit liability.
Employees of Central were covered by a noncontributory defined benefit plan,
which covered substantially all of its employees. The plan was fully
funded, and no contributions were made during the past three years. The net
periodic cost was $16 during 1992. The plan was terminated during 1993 and
Central employees were included in the Corporation's employee stock
ownership plan and 401(k) plan. The plan termination resulted in a gain of
$186 recorded during 1993.
NOTE 16--Unearned ESOP Shares
The Corporation had borrowed amounts which were concurrently loaned to the
First Commonwealth Financial Corporation Employee Stock Ownership Plan Trust
("ESOP") on the same terms. The combined balances of the ESOP related loans
were $5,196 at December 31, 1994.
The loans have been recorded as long-term debt on the Corporation's
consolidated balance sheets. A like amount of unearned ESOP shares was
recorded as a reduction of common shareholders' equity. Unearned ESOP
shares, included as a component of shareholders' equity, represents the
Corporation's prepayment of future compensation expense. Repayment of the
loans will occur over a ten year period from contributions to the ESOP by
the Corporation and dividends on ESOP shares. The shares acquired by the
ESOP are held in a suspense account and will be released to the ESOP for
allocation to the plan participants as the loan is reduced. At December 31,
1994 a total of 89,513 shares were allocated to participants resulting in
395,902 shares remaining in suspense. Interest on this loan was $312 in
1994 and $245 in 1993 and $286 in 1992. Dividends on common shares held in
the ESOP used for debt service were $478 in 1994, $417 in 1993 and $351 in
1992.
NOTE 17--Commitments and Contingent Liabilities
During 1990, a subsidiary bank was named as a defendant in a forgery claim
where the bank allegedly allowed checks bearing forged endorsements to be
negotiated. During 1994 this matter was decided in the bank's favor.
There are no material legal proceedings to which the Corporation or its
subsidiaries are a party, or of which any of their property is the subject,
except proceedings which arise in the normal course of business and, in the
opinion of management, will not have any material adverse effect on the
consolidated operations or financial position of the Corporation and its
subsidiaries.
42 <PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 18--Related Party Transactions
Some of the Corporation's or its subsidiaries' directors, executive
officers, principal shareholders and their related interests, had
transactions with the subsidiary banks in the ordinary course of business
during 1994. All loans and commitments to loans in such transactions were
made on substantially the same terms, including collateral and interest
rates, as those prevailing at the time for comparable transactions. In the
opinion of management, these transactions do not involve more than the
normal risk of collectibility nor do they present other unfavorable
features. It is anticipated that further such extensions of credit will be
made in the future.
The following is an analysis of loans to those parties whose aggregate loan
balances exceeded $60 during 1994.
Balances December 31, 1993 $27,650
Advances 12,530
Repayments (11,477)
Other (4,358)
Balances December 31, 1994 $24,345
Two loans to a director, were past due at December 31, 1994 and were carried
on a nonaccrual status during 1994 due to cash flow deficiencies. The
original loans were made on substantially the same terms as those prevailing
at the time for comparable transactions. The original balances of these
loans were $1,969 and the recorded balance of these loans at December 31,
1994 was reduced to $921. In the opinion of management, adequate amounts
have been provided in the reserve for possible loan losses for these loans.
NOTE 19--Dividend Restrictions
The amount of funds available to the parent from its subsidiary banks is
limited by restrictions imposed on all financial institutions by banking
regulators. During 1994, dividends from subsidiary banks were restricted
not to exceed $63,699. These restrictions have not had, and are not
expected to have, a significant impact on the Corporation's ability to meet
its cash obligations.
NOTE 20--Jointly-Owned Company
Investment in Commonwealth Trust Credit Life Insurance Company
("Commonwealth Trust"), a jointly-owned credit life reinsurance company in
which the Corporation has a 50% interest in the voting common stock, is
carried at cost, adjusted for the Corporation's proportionate share of the
earnings. Dividends, if any, reduce the basis of the investment.
Commonwealth Trust has been in operation since June of 1989. The
Corporation's net investment in Commonwealth Trust at December 31, 1994 was
$1,446 and income from its investment was $285 during 1994.
43
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 21--Condensed Financial Information of First Commonwealth Financial
Corporation (parent company only)
Balance Sheets
December 31,
1994 1993
Assets
Cash $ 2,120 $ 2,571
Investment in subsidiaries 224,522 229,511
Investment in jointly-owned company 1,446 1,162
Premises and equipment 2,283 1,181
Dividends receivable from subsidiaries 4,638 3,679
Receivable from related parties 275 440
Other assets 1,575 279
Total assets $236,859 $238,823
Liabilities and Shareholders' Equity
Accrued expenses and other liabilities $ 1,439 $ 947
Dividends payable 3,589 2,517
Loans payable 6,696 6,449
Shareholders' equity 225,135 228,910
Total liabilities and
shareholders' equity $236,859 $238,823
Statements of Income
Years Ended December 31,
1994 1993 1992
Dividends from subsidiaries $17,260 $13,490 $11,082
Operating expenses (7,561) (5,598) (4,893)
Income before taxes and equity
in undistributed earnings of
subsidiaries 9,699 7,892 6,189
Applicable income tax benefits 2,673 1,782 1,433
Income before equity in
undistributed earnings of
subsidiaries 12,372 9,674 7,622
Equity in undistributed
earnings of subsidiaries 16,364 18,736 16,912
Net income $28,736 $28,410 $24,534
44
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 21--Condensed Financial Information of First Commonwealth Financial
Corporation (parent company only) (Continued)
Statements of Cash Flows
Years Ended December 31,
1994 1993 1992
Operating Activities
Net income $ 28,736 $ 28,410 $ 24,534
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 1,001 1,190 865
Increase in prepaid
income taxes (112) (262) (298)
Undistributed equity in
subsidiaries (16,364) (18,736) (16,912)
Other - net (935) (11) (165)
Net cash provided by
operating activities 12,326 10,591 8,024
Investing Activities
Purchases of premises and
equipment (1,372) (499) (106)
Acquisition and additional
investment in subsidiary,
net of cash received 186 (1,000) (3,950)
Net cash used by
investing activities (1,186) (1,499) (4,056)
Financing Activities
Proceeds from issuance of
long-term debt -0- -0- 2,500
Repayment of long-term
debt (500) (500) -0-
Tax benefit of ESOP dividend 81 84 119
Discount on dividend reinvestment
plan purchases (212) (159) (124)
Treasury stock acquired (82) -0- -0-
Cash dividends paid (10,878) (8,571) (6,860)
Net cash used by
financing activities (11,591) (9,146) (4,365)
Net decrease in cash (451) (54) (397)
Cash at beginning of year 2,571 2,625 3,022
Cash at end of year $ 2,120 $ 2,571 $ 2,625
Supplemental schedule of noncash investing and financing activities
The Corporation borrowed $1,730 in 1994 and $250 in 1993 and concurrently
loaned these amounts to the ESOP on identical terms. The loans were
recorded as long-term debt and the offset was recorded as a reduction of the
common shareholders' equity. Loan payments in the amount of $983 in 1994
and $714 in each of the two years ending in 1993 were made by the ESOP
thereby reducing the outstanding amount related to unearned ESOP shares to
$5,196 at December 31, 1994.
45 <PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 22--Fair Values of Financial Instruments
Below are various estimated fair values at December 31, 1994 and 1993, as
required by Statement of Financial Accounting Standards No. 107 ("FAS No.
107"). Such information, which pertains to the Corporation's financial
instruments, is based on the requirements set forth in FAS No. 107 and does
not purport to represent the aggregate net fair value of the Corporation.
It is the Corporation's general practice and intent to hold its financial
instruments to maturity, except for certain securities designated as
securities available for sale, and not to engage in trading activities. Many
of the financial instruments lack an available trading market, as
characterized by a willing buyer and seller engaging in an exchange
transaction. Therefore, the Corporation had to use significant estimations
and present value calculations to prepare this disclosure.
Changes in the assumptions or methodologies used to estimate fair values may
materially affect the estimated amounts. Also, management is concerned that
there may not be reasonable comparability between institutions due to the
wide range of permitted assumptions and the methodologies in absence of
active markets. This lack of uniformity gives rise to a high degree of
subjectivity in estimating financial instrument fair values.
The following methods and assumptions were used by the Corporation in
estimating financial instrument fair values:
Cash and short-term instruments: The balance sheet carrying amounts for
cash and short-term instruments approximate the estimated fair values of
such assets.
Securities: Fair values for securities held to maturity and securities
available for sale are based on quoted market prices, if available. If
quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments. The carrying value of
nonmarketable equity securities, such as Federal Reserve Bank stock and
Federal Home Loan Bank stock, is considered a reasonable estimate of fair
value.
Loans receivable: Fair values of variable rate loans subject to frequent
repricing and which entail no significant credit risk are based on the
carrying values. The estimated fair values of other loans are estimated by
discounting the future cash flows using interest rates currently offered for
loans with similar terms to borrowers of similar credit quality. The
carrying amount of accrued interest is considered a reasonable estimate of
fair value.
Off-balance-sheet instruments: Many of the Corporation's off-balance-sheet
instruments, primarily loan commitments and standby letters of credit, are
expected to expire without being drawn upon, therefore the commitment
amounts do not necessarily represent future cash requirements. Management
has determined that due to the uncertainties of cash flows and difficulty in
predicting the timing of such cash flows, fair values were not estimated for
these instruments.
Deposit liabilities: For deposits which are payable on demand at the
reporting date, representing all deposits other than time deposits,
management estimates that the carrying value of such deposits is a
reasonable estimate of fair value. The carrying amounts of variable rate
time deposit accounts and certificates of deposit approximate their fair
values at the report date. Fair values of fixed rate time deposits are
estimated by discounting the future cash flows using interest rates
currently being offered and a schedule of aggregated expected maturities.
The carrying amount of accrued interest approximates its fair value.
46 <PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
(Dollar Amounts in Thousands)
NOTE 22--Fair Values of Financial Instruments (Continued)
Short-term borrowings: The carrying amounts of short-term borrowings such
as Federal funds purchased, securities sold under agreements to repurchase,
borrowings from the Federal Home Loan Bank and treasury, tax and loan notes
approximate their fair values.
Long-term debt: The carrying amounts of variable rate debt approximate
their fair values at the report date. Fair values of fixed rate debt are
estimated by discounting the future cash flows using the Corporation's
estimated incremental borrowing rate for similar types of borrowing
arrangements.
The following table presents carrying amounts and estimated fair values of
the Corporation's financial instruments at December 31, 1994 and 1993.
1994 1993
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets
Cash and due from banks $ 66,055 $ 66,055 $ 55,767 $ 55,767
Interest-bearing deposits with
banks 13,686 13,686 20,534 20,534
Federal funds sold -0- -0- 1,600 1,600
Securities available for sale 443,189 443,189 465,224 465,224
Investments held to maturity 370,498 348,074 443,942 450,451
Loans, net of reserve 1,360,457 1,377,391 1,194,626 1,245,460
Financial liabilities
Deposits 1,881,060 1,868,375 1,822,085 1,838,183
Short-term borrowings 201,706 201,706 176,184 176,184
Long-term debt 7,596 7,619 7,363 7,433
47
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
First Commonwealth Financial Corporation
We have audited the consolidated balance sheet of First Commonwealth
Financial Corporation and subsidiaries as of December 31, 1994, and the
related consolidated statements of income, changes in shareholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements of First Commonwealth Financial Corporation and
subsidiaries as of December 31, 1993 and for each of the two years in the
period ended December 31, 1993, were audited by other auditors whose report
dated March 2, 1994, expressed an unqualified opinion on those statements
prior to restatement for the transactions accounted for as poolings of
interests as described in Note 2 to the financial statements.
The consolidated financial statements as of December 31, 1993 and for each
of the two years in the period then ended have been restated to reflect the
poolings of interests with Reliable Financial Corporation and United
National Bancorporation as described in Note 2 to the consolidated financial
statements. These 1993 and 1992 financial statements were audited and
reported on separately by other auditors, whose reports expressed
unqualified opinions on such financial statements. We have audited the
combination of the accompanying consolidated financial statements for 1993
and 1992 after restatement for the 1994 poolings of interests. In our
opinion, such consolidated statements have been properly combined on the
basis described in Note 2.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the 1994 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
First Commonwealth Financial Corporation and subsidiaries as of December 31,
1994, and the consolidated results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 14, the Corporation changed its method of
accounting for investments and income taxes during 1993.
GRANT THORNTON LLP
Pittsburgh, Pennsylvania
January 26, 1995
48
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders of
First Commonwealth Financial Corporation
Indiana, Pennsylvania
We have audited the consolidated balance sheets of First Commonwealth
Financial Corporation and subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the two years in the period ended December
31, 1993 prior to restatement for the transactions accounted for as poolings
of interests. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Commonwealth Financial Corporation and subsidiaries as of December 31, 1993
and 1992, and the results of their operations and cash flows for each of the
two years in the period ended December 31, 1993 prior to restatement for the
transactions accounted for as poolings of interests, in conformity with
generally accepted accounting principles.
As discussed in NOTE 1 to the consolidated financial statements, the
Corporation changed its method of accounting for income taxes and
investments.
JARRETT STOKES & KELLY
Indiana, Pennsylvania
March 2, 1994
49<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 8. Financial Statements and Supplementary Data
Quarterly Summary of Financial Data - Unaudited
(Dollar Amounts in Thousands, except per share data)
The unaudited quarterly results of operations for the years ended
December 31, 1994 and 1993 are as follows. All amounts have been restated
to reflect poolings of interests.
<TABLE>
<CAPTION>
1994
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Interest income.............................. $37,825 $39,091 $40,675 $42,053
Interest expense............................. 16,417 16,657 17,444 18,584
Net interest income..................... 21,408 22,434 23,231 23,469
Provision for possible loan losses........... 688 722 766 720
Net interest income after provision for
possible loan losses....................... 20,720 21,712 22,465 22,749
Securities gains (losses).................... 466 1,333 (71) 3,808
Other operating income....................... 2,867 2,617 2,683 2,468
Other operating expenses..................... 14,991 15,309 15,737 14,818
Income before taxes and cumulative
effect of change in accounting method. 9,062 10,353 9,340 14,207
Applicable income taxes...................... 2,863 3,553 2,999 4,811
Net income before cumulative effect of
change in accounting method........... $ 6,199 $ 6,800 $ 6,341 $ 9,396
Earnings per share(a)........................ $ 0.28 $ 0.30 $ 0.28 $ 0.42
1993
First Second Third Fourth
Quarter Quarter Quarter Quarter
Interest income.............................. $38,811 $39,210 $38,292 $38,677
Interest expense............................. 16,998 16,900 16,614 16,652
Net interest income..................... 21,813 22,310 21,678 22,025
Provision for possible loan losses........... 718 644 659 899
Net interest income after provision for
possible loan losses....................... 21,095 21,666 21,019 21,126
Securities gains............................. 1,140 611 666 1,111
Other operating income....................... 2,761 2,760 2,612 2,827
Other operating expenses..................... 14,544 15,050 14,686 15,125
Income before taxes and cumulative
effect of change in accounting method. 10,452 9,987 9,611 9,939
Applicable income taxes...................... 3,210 2,980 3,172 3,082
Net income before cumulative effect of
change in accounting method........... $ 7,242 $ 7,007 $ 6,439 $ 6,857
Earnings per share(a)........................ $ 0.32 $ 0.31 $ 0.29 $ 0.32
</TABLE>
(a) Average number of shares outstanding has been restated to reflect
two-for-one stock split effected in the form of a 100% stock dividend
declared January 18, 1994.
50
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION
ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
Information appearing in the definitive Proxy Statement related to
the annual meeting of security holders to be held April 22, 1994
is incorporated herein by reference in response to the listing of
directors.
The table below lists the current executive officers of the Corporation.
Name Age Positions Held During the Past Five Years
E. James Trimarchi 72 Chairman of the Board, Chairman of the
Board of FCTC and Chairman of the Board
of CSC; Director of NBOC, Unitas Bank,
RFC, RSB and CTCLIC, Former President and
Chief Executive Officer of the
Corporation
Joseph E. O'Dell 49 President and Chief Executive Officer of
the Corporation, Assistant Secretary/
Treasurer of the Corporation, Director
of Unitas Bank, RFC, RSB and FCTC, Vice
Chairman of the Board of CSC; Former
Senior Executive Vice President and Chief
Operating Officer of the Corporation
Gerard M. Thomchick 39 Senior Executive Vice President and Chief
Operating Officer of the Corporation;
President, Chief Executive Officer and
Director of CTCLIC; Director of Deposit,
Central and FCTC
David R. Tomb, Jr. 63 Vice President, Secretary and Treasurer
of the Corporation; Director of NBOC
Leechburg, CSC, PBWPA and CTCLIC
John J. Dolan 38 Senior Vice President, Comptroller and
Chief Financial Officer of the
Corporation, Chief Financial
Officer/Comptroller of CTCLIC,
Treasurer and Assistant Secretary of
FCTC, Director of PBT
George E. Dash 44 Senior Vice President/Sales and
Marketing, Director of Central
Johnston A. Glass 45 President and Chief Executive Officer of
NBOC, Director of the Corporation
William Miksich 59 President, Chief Executive Officer and
Director of Deposit Bank
Each of the officers identified above has held the position indicated above
or other executive positions with the same entity (or a subsidiary thereof)
for at least the past five years.
Executive officers of the Corporation serve at the pleasure of the Board of
Directors of the Corporation and for a term of office extending through the
election and qualification of their successors.
51
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION
ITEM 11 - MANAGEMENT RENUMERATION
Information appearing in the definitive Proxy Statement related to
the annual meeting of security holders to be held April 22, 1995
is incorporated herein by reference in response to this item.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information appearing in the definitive Proxy Statement related to
the annual meeting of security holders to be held April 22, 1995
is incorporated herein by reference in response to this item.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information appearing in the definitive Proxy Statement related to
the annual meeting of security holders to be held April 22, 1995
is incorporated herein by reference in response to this item.
52<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND
REPORTS ON FORM 8-K
(A) Documents Filed as Part of this Report
1) Financial Statements
All financial statements of the registrant as set forth under
Item 8 of this Report on Form 10-K.
2) Financial Statement Schedules
Schedule
Number Description Page
I Indebtedness to Related Parties N/A
II Guarantees of Securities of Other Issuers N/A
Page Number or
Exhibit Incorporated by
3) Number Description Reference to
3.1 Articles of Incorporation Exhibit 3(i) to the
Corporation's quarterly
report on Form 10Q for the
quarter ended March 31,
1994
3.2 By-Laws of Registrant Exhibit 3.2 to Form S-4
filed October 15, 1993
10.1 Employment Contract Exhibit 10.2 to Form S-4
Sumner E. Brumbaugh Filed October 15, 1993
10.2 Employment Contract Exhibit 10.3 to Form S-4
Robert F. Koslow filed October 15, 1993
10.3 Employment Contract Exhibit 10.4 to Form S-4
Stephen Grippi filed August 29, 1994
21.1 Subsidiaries of the
Registrant
23.1 Consent of Grant Thornton LLP
Certified Public Accountants
23.2 Consent of Jarrett Stokes & Kelly
Certified Public Accountants
24.1 Power of Attorney
(B) Report of Form 8-K
(1) From 8-K dated October 20, 1994 reporting the Corporation's
intent to buy back shares of its common stock to be used to
cover outstanding stock options.
53<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Indiana,
Pennsylvania, on the 22nd day of March 1995.
FIRST COMMONWEALTH FINANCIAL CORPORATION
(Registrant)
/S/JOSEPH E. O'DELL
Joseph E. O'Dell, President and Chief Executive Officer
54
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION
Exhibit 21.1 - SUBSIDIARIES OF FIRST COMMONWEALTH FINANCIAL
CORPORATION
Percent Ownership
By Registrant
National Bank of the Commonwealth 100%
601 Philadelphia Street
Indiana, PA 15701
Nationally Chartered Bank
Deposit Bank 100%
Long Avenue and Brady Street
DuBois, PA 15801
Incorporated under the laws of Pennsylvania
Cenwest National Bank 100%
217 Franklin Street
Johnstown, PA 15901
Nationally Chartered Bank
First National Bank of Leechburg 100%
P.O. Box 566
Leechburg, Pa 15656
Nationally chartered Bank
Peoples Bank and Trust Company 100%
P.O. Box 265
Jennerstown, PA 15547
Incorporated under the laws of Pennsylvania
Central Bank 100%
North Juniata Street
at U.S. Route 220
Hollidaysburg, PA 16648
Peoples Bank of Western Pennsylvania 100%
27 East Washington Street
New Castle, PA 16101
Unitas National Bank 100%
15 South Main Street
Chambersburg, PA 17201
Reliable Financial Corporation 100%
428 Station Street
Bridgeville, PA 15017
Unitas Mortgage Corporation 100%
17 East High Street
Carlisle, PA 17013
Unitas Financial Corporation 100%
PO Box 777
Chambersburg, PA 17201
Unitas Real Estate Corporation 100%
PO Box 777
Chambersburg, PA 17201
Unitas Services Corporation 100%
PO Box 777
Chambersburg, PA 17201
Unitas Leasing Corporation 100%
PO Box 777
Chambersburg, PA 17201
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION
Exhibit 21.1 - SUBSIDIARIES OF FIRST COMMONWEALTH FINANCIAL
CORPORATION (Continued)
Percent Ownership
By Registrant
Commonwealth Systems Corporation 100%
22 North Sixth Street
Indiana, PA 15701
Incorporated under the laws of Pennsylvania
First Commonwealth Trust Company 100%
614 Philadelphia Street
Indiana, PA 15701
Incorporated under the laws of Pennsylvania
Commonwealth Trust Credit Life Insurance Company 50%
100 West Clarendon, Suite 800
Phoenix, AZ 85013
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION
Exhibit 23.1 - CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 26, 1995, accompanying the
consolidated financial statements incorporated by reference of First
Commonwealth Financial Corporation and subsidiaries on Form 10K for the year
ended December 31, 1994. We hereby consent to the Incorporation by
reference of said reports in the Registration Statement of First
Commonwealth Financial Corporation and subsidiaries on Form S-8
(File No. 33-55687) and the related prospectus.
Grant Thornton LLP
Pittsburgh, Pennsylvania
March 17, 1995
<PAGE>
Exhibit 23.2 - CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 2, 1994, accompanying the
consolidated financial statements incorporated by reference of First
Commonwealth Financial Corporation and subsidiaries on Form 10K for the year
ended December 31, 1994. We hereby consent to the Incorporation by
reference of said reports in the Registration Statement of First
Commonwealth Financial Corporation and subsidiaries on Form S-8
(File No. 33-55687) and the related prospectus.
Jarrett Stokes & Kelly
Indiana, Pennsylvania
March 23, 1995
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION
Exhibit 24.1 - POWER OF ATTORNEY
KNOWN ALL ME BY THESE PRESENT - that each person whose signature
appears below constitutes and appoints Joseph E. O'Dell and David R. Tomb,
Jr., and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Form 10-K, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to do
done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE AND CAPACITY DATE
/S/JOSEPH E. O'DELL March 8, 1995
Joseph E. O'Dell, President and CEO
/S/DAVID R. TOMB, JR. March 8, 1995
David R. Tomb, Jr., Secretary/Treasurer and Director Vice President
/S/JOHN J. DOLAN March 7, 1995
John J. Dolan, Sr. Vice President and Comptroller & CFO (1)
/S/JOHNSTON A. GLASS March 10, 1995
Johnston A. Glass, Director
/S/DALE P. LATIMER March 14, 1995
Dale P. Latimer, Director
/S/CHARLES J. SZEWCZYK March 14, 1995
Charles J. Szewczyk, Director
/S/RONALD C. GEISER March 14, 1995
Ronald C. Geiser, Director
/S/HARVEY H. HEILMAN, JR. March 14, 1995
Harvey H. Heilman, Jr., Director
/S/SUMNER E. BRUMBAUGH March 14, 1995
Sumner E. Brumbaugh, Director
/S/THOMAS L. DELANEY March 14, 1995
Thomas L. Delaney, Director
/S/DAVID F. IRVIN March 16, 1995
David F. Irvin, Director
/S/DAVID L. JOHNSON March 16, 1995
David L. Johnson, Director
/S/EDWARD T. COTE March 16, 1995
Edward T. Cote, Director
(1) Also Accounting Officer
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<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1993 DEC-31-1992
<PERIOD-START> JAN-01-1994 JAN-01-1993 JAN-01-1992
<PERIOD-END> DEC-31-1994 DEC-31-1993 DEC-31-1992
<CASH> 66,055 55,767 0
<INT-BEARING-DEPOSITS> 13,686 20,534 0
<FED-FUNDS-SOLD> 0 1,600 0
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 443,189 465,224 0
<INVESTMENTS-CARRYING> 370,498 443,942 0
<INVESTMENTS-MARKET> 348,074 450,451 0
<LOANS> 1,422,320 1,248,934 0
<ALLOWANCE> 17,337 16,483 0
<TOTAL-ASSETS> 2,334,921 2,252,836 0
<DEPOSITS> 1,881,060 1,822,085 0
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0 0 0
0 0 0
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<INTEREST-INVEST> 48,645 47,988 46,146
<INTEREST-OTHER> 786 1,543 3,797
<INTEREST-TOTAL> 159,644 154,990 155,606
<INTEREST-DEPOSIT> 61,185 63,067 71,087
<INTEREST-EXPENSE> 69,102 67,164 73,295
<INTEREST-INCOME-NET> 90,542 87,826 82,311
<LOAN-LOSSES> 2,896 2,920 3,744
<SECURITIES-GAINS> 5,536 3,528 955
<EXPENSE-OTHER> 60,855 59,405 54,957
<INCOME-PRETAX> 42,962 39,989 33,927
<INCOME-PRE-EXTRAORDINARY> 28,736 27,545 24,534
<EXTRAORDINARY> 0 0 0
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<NET-INCOME> 28,736 28,410 24,534
<EPS-PRIMARY> $1.28 $1.27 $1.12
<EPS-DILUTED> $1.28 $1.27 $1.12
<YIELD-ACTUAL> 4.30 4.43 4.68
<LOANS-NON> 9,575 9,672 9,328
<LOANS-PAST> 6,936 9,106 7,578
<LOANS-TROUBLED> 733 1,413 1,229
<LOANS-PROBLEM> 0 0 0
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