<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
For the Quarter ended March 31, 1995 Commission file number 0-11242
FIRST COMMONWEALTH FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1428528
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
22 NORTH SIXTH STREET INDIANA, PA 15701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 349-7220
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes XX No .
Indicate the number of shares outstanding of each of the issuer's classes
of common stock.
CLASS OUTSTANDING AT May 8, 1995
Common Stock, $1 Par Value 22,339,196 Shares
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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Included in Part I of this report: PAGE
First Commonwealth Financial Corporation and
Subsidiaries Consolidated Balance Sheets . . . . . 3
Consolidated Statements of Income. . . . . . . . . 4
Consolidated Statements of Changes in
Shareholders' Equity . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows. . . . . . . 6
Notes to Consolidated Financial Statements . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . 8
PART II - OTHER INFORMATION
Other Information . . . . . . . . . . . . . . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . Signature Page
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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
March 31, December 31,
1995 1994
ASSETS
Cash and due from banks.............. $ 58,823 $ 66,055
Interest-bearing bank deposits....... 5,059 13,686
Federal funds sold .................. 1,600 -0-
Securities available for sale........ 447,178 443,189
Securities held to maturity
$351,857 in 1995 and
$348,074 in 1994).................. 365,273 370,498
Loans (all domestic)................. 1,445,879 1,422,320
Less unearned income............... 46,227 44,526
Less reserve for possible loan losses 17,327 17,337
Net loans....................... 1,382,325 1,360,457
Property and equipment............... 29,251 29,196
Other real estate owned.............. 2,497 2,269
Other assets......................... 49,392 49,571
TOTAL ASSETS.................... $2,341,398 $2,334,921
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (all domestic):
Noninterest-bearing................ $ 188,644 $ 199,172
Interest-bearing................... 1,687,614 1,681,888
Total deposits.................. 1,876,258 1,881,060
Short-term borrowings................ 201,011 201,706
Other liabilities.................... 23,445 19,424
Long-term debt....................... 7,824 7,596
Total liabilities............... 2,108,538 2,109,786
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, issued; 22,353,728 and
22,430,728 shares outstanding in
1995 and 1994, respectively........ 22,437 22,437
Additional paid-in capital........... 77,886 77,964
Retained earnings.................... 149,528 146,814
Unrealized gain (loss) on securities
available for sale................. (10,407) (16,802)
Treasury stock (82,900 shares at
March 31, 1995 and 5,900 at
December 31, 1994)................. (1,155) (82)
Unearned ESOP shares................. (5,429) (5,196)
Total shareholders' equity......... 232,860 225,135
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY.......... $2,341,398 $2,334,921
The accompanying notes are an integral part of these consolidated financial
statements.
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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands except per share data)
For the 3 Months
Ended March 31,
1995 1994
Interest Income
Interest and fees on loans........ $30,713 $25,552
Interest and dividends on investments:
Taxable interest................ 11,009 10,936
Interest exempt from federal
income taxes................... 755 898
Dividends....................... 238 273
Interest on federal funds sold.... 33 20
Interest on bank deposits......... 170 146
Total Interest Income.......... 42,918 37,825
Interest Expense
Interest on deposits.............. 16,838 14,753
Interest on short-term borrowings. 2,947 1,558
Interest on long-term debt........ 163 106
Total Interest Expense......... 19,948 16,417
Net interest income................. 22,970 21,408
Provision for possible loan losses 793 688
Net interest income after provision
for possible loan losses.......... 22,177 20,720
Other Income
Securities gains.................. 24 466
Trust income...................... 558 653
Service charges on deposits....... 1,314 1,257
Other income...................... 645 957
Total Other Income............. 2,541 3,333
Other Expenses
Salaries and employee benefits.... 7,902 7,665
Net occupancy expense............. 1,107 1,138
Furniture and equipment expense... 1,000 971
FDIC expense...................... 1,065 1,029
Other operating expenses.......... 4,343 4,188
Total Other Expenses........... 15,417 14,991
Income before taxes................. 9,301 9,062
Applicable income taxes........... 3,011 2,863
Net Income.......................... $ 6,290 $ 6,199
Average Shares Outstanding.......... 21,982,714 22,418,900
Per Share Data:
Net income.......................... $0.29 $0.28
Cash dividends per share............ $0.16 $0.14
The accompanying notes are an integral part of these consolidated financial
statements.<PAGE>
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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Unrealized
Gain (loss)
Additional on Securities 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, 1993.... $22,517 $79,094 $131,380 $ 1,584 $(4,449) $(1,216) $228,910
Net income.................... -0- -0- 6,199 -0- -0- -0- 6,199
Cash dividends declared....... -0- -0- (2,610) -0- -0- -0- (2,610)
Cash dividends declared by
pooled subsidiaries prior to
merger...................... -0- -0- (663) -0- -0- -0- (663)
Change in unrealized gain (loss)
on securities available for
sale, net of tax effect..... -0- -0- -0- (5,366) -0- -0- (5,366)
Increase in unearned ESOP shares -0- -0- -0- -0- (551) -0- (551)
Discount on dividend reinvestment
plan purchases.............. -0- (48) -0- -0- -0- -0- (48)
Treasury stock reissued by
pooled subsidiary........... -0- -0- (105) -0- -0- 218 113
Balance at March 31, 1994....... $22,517 $79,046 $134,201 $ (3,782) $(5,000) $ (998) $225,984
Balance at December 31, 1994.... $22,437 $77,964 $146,814 $(16,802) $(5,196) $ (82) $225,135
Net income.................... -0- -0- 6,290 -0- -0- -0- 6,290
Cash dividends declared....... -0- -0- (3,576) -0- -0- -0- (3,576)
Change in unrealized gain (loss)
on securities available for
sale, net of tax effect..... -0- -0- -0- 6,395 -0- -0- 6,395
Increase in unearned ESOP shares -0- -0- -0- -0- (233) -0- (233)
Discount on dividend reinvestment
plan purchases.............. -0- (78) -0- -0- -0- -0- (78)
Treasury stock acquired....... -0- -0- -0- -0- -0- (1,073) (1,073)
Balance at March 31, 1995....... $22,437 $77,886 $149,528 $(10,407) $(5,429) $(1,155) $232,860
The accompanying notes are an integral part of these consolidated financial
statements.
/TABLE
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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the 3 Months
Ended March 31,
1995 1994
Operating Activities
Net income....................................... $ 6,290 $ 6,199
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses............ 793 688
Depreciation and amortization................. 1,258 1,374
Net gains on sales of assets.................. (25) (532)
Increase in interest receivable............... (695) (1,284)
Increase in interest payable.................. 1,284 152
Increase in income taxes payable.............. 2,542 1,471
Provision for deferred taxes.................. 296 822
Other(net).................................... (3,102) (2,900)
Net cash provided by operating activities... 8,641 5,990
Investing Activities
Proceeds from investment securities transactions:
Transactions with securities held to maturity:
Sales......................................... -0- 6,457
Maturities and redemptions.................... 7,365 33,269
Purchases..................................... (2,131) (29,577)
Transactions with securities available for sale:
Sales......................................... 2,641 37,135
Maturities and redemptions.................... 10,385 24,753
Purchases..................................... (7,166) (70,557)
Proceeds from sales of loans and other assets.... 3,251 5,543
Net decrease in time deposits with banks......... 8,627 2,993
Net increase in loans............................ (26,095) (27,196)
Purchase of premises and equipment............... (926) (1,221)
Net cash used by investing activities.......... (4,049) (18,401)
Financing Activities
Repayments of long-term debt..................... (4) (4)
Discount on dividend reinvestment plan purchases. (78) (48)
Dividends paid................................... (3,589) (2,516)
Dividends paid by pooled subsidiaries prior to
merger......................................... -0- (100)
Net increase (decrease) in deposits.............. (4,784) 13,479
Net increase in federal funds purchased.......... 21,865 7,837
Net decrease in other short-term borrowings...... (22,561) (6,203)
Treasury stock acquired.......................... (1,073) -0-
Reissuance of treasury stock by pooled company... -0- 113
Net cash provided (used) by financing
activities................................. (10,224) 12,558
Net increase (decrease) in cash and
cash equivalents.......................... (5,632) 147
Cash and cash equivalents at January 1............. 66,055 57,367
Cash and cash equivalents at March 31.............. $60,423 $57,514
The accompanying notes are an integral part of these consolidated financial
statements.
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FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
(Unaudited)
NOTE 1 Management Representation
In the opinion of management, the unaudited interim consolidated
financial statements include all adjustments (consisting of only
normal recurring adjustments) necessary for a fair statement of
financial position as of March 31, 1995 and the results of
operations for the three month periods ended March 31, 1995 and
1994, and statements of cash flows and changes in shareholders'
equity for the three month periods ended March 31, 1995 and 1994.
The results of the three months ended March 31, 1995 and 1994 are
not necessarily indicative of the results to be expected for the
entire year. The interim consolidated financial statements
should be read in conjunction with the annual consolidated
financial statements of First Commonwealth Financial Corporation
and Subsidiaries, including the notes thereto.
NOTE 2 Cash Flow Disclosures (dollar amounts in thousands)
Cash paid during the first three months of the year for interest
and income taxes were as follows:
1995 1994
Interest $18,664 $16,265
Income Taxes $ 148 $ 913
The Corporation borrowed $500 and $730 in the first three months
of 1995 and 1994, respectively, and concurrently loaned these
amounts to the ESOP Trust on identical terms. ESOP loan payments
of $267 and $179 were made by the ESOP Trust during the
respective 1995 and 1994 periods, thereby resulting in
outstanding amounts related to unearned ESOP shares of $5,429 at
March 31, 1995 and $5,000 at March 31, 1994.
1995 1994
Loans transferred to Other real estate
owned and Repossessed assets $1,033 $ 584
Change in Market value adjustment to
securities available for sale
pursuant to FAS 115 $9,838 $(8,253)
NOTE 3 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.<PAGE>
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ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Corporation acquired United National Bancorporation and its
subsidiaries ("United") and Reliable Financial Corporation and
its subsidiary ("Reliable") effective September 29, 1994 and
September 27, 1994, respectively. 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.
First Three Months of 1995 as Compared to the First Three Months
of 1994
Net income in the three months of 1995 was $6.3 million, an
increase of $91 thousand over the 1994 period. Earnings per
share was $0.29 during the three months of 1995 compared to $0.28
during the 1994 period. Return on average assets was 1.09% and
return on average equity was 11.09% during the 1995 period,
compared to 1.11% and 10.84%, respectively during the same period
of 1994.
Net interest income, the most significant component of earnings,
is the amount by which interest generated from earning assets
exceeds interest expense on liabilities. Net interest income for
the 1995 period was $23.0 million compared to $21.4 million
during the same time period in 1994. Interest income, on a tax-
equivalent basis, increased 71 basis points (0.71%) as a
percentage of average earning assets to 7.98% in 1995, from 7.27%
in the 1994 period. Yields have improved each quarter since the
quarter ended March 31, 1994, reflecting higher interest rates
over that time period. The rise in interest rates stabilized
prepayments of the mortgage backed securities portfolio as well
as portfolio yields. Since a majority of the cash flows provided
by maturities and repayments of securities were redeployed into
loan growth, improved investment portfolio yields resulted from
adjustable rate instruments repricing. The cost of funds was
4.25% and 3.63% in the three months of 1995 and 1994,
respectively, as deposit costs, the predominant category,
increased 36 basis points (0.36%) to 3.65%. The increase in
rates on short-term deposits were partially offset by a stable
cost of longer term deposits. As deposit customers tended to
extend maturities when interest rates declined in the recent
past, the cost of these deposits did not rise as fast as interest
rates. Net interest margin (net interest income, on a tax-
equivalent basis, as a percentage of average earning assets) was
4.33% of earning assets during 1995, compared to 4.18% in the
1994 related period.
Average earning assets were 94.9% of average total assets in the
1995 period and 95.3% during the 1994 time frame. Average
interest-bearing liabilities increased as a percentage of average
total assets to 81.5% in the three months of 1995 and 81.3%
during the related 1994 period.
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ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
First Three Months of 1995 as Compared to the First Three Months
of 1994 (Continued)
Provision for possible loan losses was $793 thousand for the
three month period of 1995 compared to $688 thousand during the
1994 period. Net charge-offs against the reserve for possible
loan losses were $803 thousand in the 1995 period and $228
thousand in the 1994 period. Management does not feel that the
additional charge-offs during the 1995 period indicate a trend.
See "Credit Review" section for an analysis of the quality of the
loan portfolio. Below is an analysis of the consolidated reserve
for possible loan losses for the three month periods ended
March 31, 1995 and 1994.
1995 1994
Balance January 1, $17,337 $16,483
Loans charged off:
Commercial, financial and
agricultural 289 112
Real estate-construction -0- -0-
Real estate-commercial 139 18
Real estate-residential 80 61
Loans to individuals 549 453
Lease financing receivables 5 6
Total loans charged off 1,062 650
Recoveries of previously
charged off loans:
Commercial, financial and
agricultural 50 59
Real estate-construction -0- -0-
Real estate-commercial 13 211
Real estate-residential 8 4
Loans to individuals 101 141
Lease financing receivables 87 7
Total recoveries 259 422
Net charge offs 803 228
Provision charged to operations 793 688
Balance March 31, $17,327 $16,943
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ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
First Three Months of 1995 as Compared to the First Three Months
of 1994 (Continued)
Other operating income decreased $792 thousand in 1995 to $2.5
million. Net security gains decreased $442 thousand.
Securities, primarily US Treasury Securities and US Government
Agency Securities, totalling $2.6 million were sold and
reinvested in similar securities with maturities of 3-5 years.
All of these securities were classified as "securities available
for sale". Trust income declined $95 thousand in the 1995 period
primarily as a result of higher nonrecurring income, such as
estate fees, during the 1994 period. Service charges on deposits
increased $57 thousand in the 1995 period primarily because
deposits increased. Other income declined $312 thousand in the
1995 period when compared to the 1994 total of $957 thousand.
The largest component of the decline was a reduction of gains on
the sales of other real estate owned and loans.
Noninterest expense was $15.4 million in the three months of 1995
which reflected an increase of $426 thousand over the 1994
period. Total noninterest expense was 2.68% of average assets
during the 1995 period compared to 2.70% for the 1994 related
time frame. Employee costs were $7.9 million in 1995, an
increase of $237 thousand over the 1994 related period.
Employee costs (annualized) as a percentage of average assets was
1.37% in the 1995 period, reduced from 1.38% (annualized) in the
1994 period. Net occupancy expense and furniture and equipment
expense remained fairly constant from the 1994 period to the 1995
period. Other operating expenses increased $155 thousand in the
three months of 1995 when compared to the 1994 related period.
The amortization of core deposit intangibles decreased $135
thousand during the 1995 period as the intangibles related to the
Deposit Bank merger in 1984 became fully amortized during 1994.
No single expense category contributed significantly to the
remaining increase.
Income tax expense was $3.0 million during the three months of
1995 and $2.9 million during the 1994 period. Income before
taxes increased $239 thousand in the 1995 period when compared to
the same time period of 1994. The Corporation's effective tax
rate was 32.4% for the 1995 period and compared to 31.6% for the
1994 period, reflecting a decrease in tax-free income.
LIQUIDITY
Liquidity is a measure of the Corporation's ability to meet
normal cash flow requirements of both borrowers and depositors
efficiently. In the ordinary course of business, funds are
generated from deposits (primary source), and maturity or
repayment of earning assets, such as securities and loans. As an
additional secondary source, short-term liquidity needs may be
provided through the use of overnight federal funds purchased and
borrowings from the Federal Reserve Bank. Additionally, each of
the subsidiary banks are members of the Federal Home Loan Bank
and may borrow up to ten percent of their total assets at any one
time.<PAGE>
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ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY (Continued)
Net loans increased $21.9 million in the first three months of
1995 as consumer demand resulted in a growth in consumer
mortgages and loans to individuals for personal and household
purposes. Total deposits grew $4.8 million as time deposit
categories increased and demand deposits decreased. The growth
is primarily from core customer deposit relationships.
Investment securities held to maturity declined $5.2 million
while interest-bearing bank deposits declined $8.6 million and
Federal funds sold increased $1.6 million since December 31,
1994.
An additional source of liquidity are certain marketable
securities that the Corporation holds in its investment
portfolio. These securities are classified as "securities
available for sale". While the Corporation does not have
specific intentions to sell these securities, they may be sold
for the purpose of obtaining future liquidity, for management of
interest rate risk or as part of the implementation of tax
strategies. As of March 31, 1995 securities available for sale
had an amortized cost of $463.2 million and an approximate market
value of $447.2 million. As long-term interest rates stabilized
since the end of 1994, the market value of securities available
for sale improved $9.8 million. The difference between the
market value and amortized cost of the securities available for
sale is not of major concern to management since the average life
of the entire portfolio is just over five years.
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 the
prescribed time period, a positive gap results. Conversely, when
ISL exceeds ISA during a time period, a negative gap results.
A positive gap tends to indicate that earnings will be impacted
favorably if interest rates rise during the period and negatively
when interest rates fall during the time period. A negative gap
tends to indicate that earnings will be affected inversely to
interest rates changes. In other words, as interest rates fall,
a negative gap should tend to produce a positive effect on
earnings and when interest rates rise, a negative gap should tend
to affect earnings negatively.
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ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Interest Sensitivity (continued)
The primary components of ISA include adjustable rate loans and
investments, loan repayments, investment maturities and money
market investments. The primary components of ISL include
maturing certificates of deposit, money market deposits, savings
deposits, N.O.W. accounts and short-term borrowings.
The following table lists the amounts and ratios of assets and
liabilities with rates or yields subject to change within the
periods indicated as of March 31, 1995 and December 31, 1994.
March 31, 1995
0-90 91-180 181-365 Cumulative
Days Days Days 0-365 Days
Loans.................... $ 426,136 $ 93,779 $164,350 $ 684,265
Investments.............. 23,317 20,345 71,179 114,841
Other interest-earning
assets.................. 89,394 4,490 9,319 103,203
Total interest-sensitive
assets................ 538,847 118,614 244,848 902,309
Certificates of deposits. 164,879 119,457 188,010 472,346
Other deposits........... 656,887 -0- -0- 656,887
Borrowings............... 185,852 3,900 10,793 200,545
Total interest-sensitive
liabilities........... 1,007,618 123,357 198,803 1,329,778
GAP.................... (468,771) (4,743) 46,045 (427,469)
ISA/ISL.................. 0.53 0.96 1.23 0.68
Gap/Total assets......... 20.02% 0.20% 1.97% 18.26%
December 31, 1994
0-90 91-180 181-365 Cumulative
Days Days Days 0-365 Days
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 deposits. 166,557 114,482 125,588 406,627
Other deposits........... 687,882 -0- -0- 687,882
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%
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.
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ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Interest Sensitivity (continued)
Therefore, to more precisely measure the impact of interest rate
changes on the Corporation's net interest income, management
simulates the potential effects of changing interest rates
through computer modeling. The Corporation is then better able
to implement strategies which would include an acceleration of a
deposit rate reduction or a lag in a deposit rate increase. The
repricing strategies for loans would be inversely related.
The analysis at March 31, 1995, indicated that a 300 basis point
(3.00%) movement in interest rates in either direction over the
next twelve months would not have a significant impact on the
Corporation's anticipated net interest income over that time
frame.
CREDIT REVIEW
The following table identifies amounts of loan losses and
nonperforming loans. Past due loans are those which were
contractually past due 90 days or more as to interest or
principal payments but were well secured and in the process of
collection. Renegotiated loans are those which terms had been
renegotiated to provide a reduction or deferral of principal or
interest as a result of the deteriorating financial position of
the borrower and are in compliance with the restructured terms.
Loans on a nonaccrual basis include impaired loans (see
description below).
At March 31,
1995 1994
(amounts in thousands)
Nonperforming Loans:
Loans on nonaccrual basis $ 9,461 $ 12,931
Past due loans 7,076 6,444
Renegotiated loans 709 604
Total nonperforming loans $ 17,246 $ 19,979
Other real estate owned $ 2,497 $ 3,365
Loans outstanding at end of period $1,339,652 $1,234,908
Average loans outstanding (year-to-date) $1,390,093 $1,220,631
Nonperforming loans as percent of
total loans 1.29% 1.62%
Provision for possible loan losses $ 793 $ 688
Net charge-offs $ 803 $ 228
Net charge-offs as percent of
average loans 0.06% 0.02%
Provision for possible loan losses as
percent of net charge-offs 98.75% 301.75
Reserve for possible loan losses as
percent of average loans outstanding 1.25% 1.39%
Reserve for possible loan losses as
percent of nonperforming loans 100.47% 84.80%<PAGE>
<PAGE>
ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
CREDIT REVIEW (Continued)
Other than those described above, there are no material credits
that management has serious doubts as to the borrower's ability
to comply with the present loan prepayment terms. Additionally,
the portfolio is well diversified and as of March 31, 1995, there
were no significant concentrations of credit.
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 remain safely within acceptable levels during
1995.
The Corporation adopted Financial Accounting Standards Board
Statement No. 114 "Accounting by Creditors for Impairment of a
Loan", as amended by Statement No. 118 "Accounting by Creditors
for Impairment of a Loan Income Recognition and Disclosures",
("FAS No. 118") effective January 1, 1995. These statements
address the accounting by creditors, such as banks, for the
impairment of certain loans. It requires that impaired loans
that are within the scope of this statement be measured based on
the present value of expected cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the
loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The adoption of
FAS No. 118 did not have a material impact on the Corporation's
financial condition or results of operations.
As of March 31, 1995, the Corporation had a recorded investment
in impaired loans of $6.6 million with an average balance also of
$6.6 million. An allocation of the reserve for possible loan
losses in the amount of $997 thousand relates to $3.9 million of
the impaired loans. Impaired loans totalling $2.7 million have
no reserve allocation, in accordance with FAS No. 118.
Payments received on impaired loans are applied against the
recorded investment in the loan. For loans other than those that
the Corporation expects repayment through liquidation of the
collateral, when the remaining recorded investment in the
impaired loan is less than or equal to the present value of
expected discounted cash flows, income is recorded on a cash
basis. Income recorded on impaired loans during the first three
months of 1995 was $7 thousand.
<PAGE>
<PAGE>
ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
CAPITAL RESOURCES
Equity capital increased $7.7 million in 1995. Earnings
retention was $2.7 million, representing an earnings retention
rate of 43.1%. The retained net income remains in permanent
capital to fund future growth and expansion. Stock purchased by
the Employee Stock Ownership Plan (the "ESOP"), subject to the
debt of the Corporation, reduced equity by $500 thousand while
the loan repayment by the ESOP of debt guaranteed by the
Corporation increased equity by $267 thousand. Amounts paid to
fund the discount on reinvested dividends reduced equity by $78
thousand. The market value adjustment to securities available
for sale increased equity by $6.4 million resulting from a
rebound in market values as longer term interest rates decreased
in the first quarter of 1995. Treasury stock in the amount of
$1.1 million, acquired to satisfy outstanding stock option
commitments, reduced equity by a like amount.
A capital base can be considered adequate when it enables the
Corporation to intermediate funds responsibly and provide related
services, while protecting against future uncertainties. The
evaluation of capital adequacy depends on a variety of factors,
including asset quality, liquidity, earnings history and
prospects, internal controls and management caliber. In
consideration of these factors, management's primary emphasis
with respect to the Corporation's capital position is to maintain
an adequate and stable ratio of equity to assets.
The Federal Reserve Board issued risk-based capital adequacy
guidelines which are designed principally as a measure of credit
risk. These guidelines require: (1) at least 50% of a banking
organization's total capital be common and other "core" equity
capital ("Tier I Capital"); (2) assets and off-balance-sheet
items must be weighted according to risk; (3) the total capital
to risk-weighted assets ratio be at least 8%; and (4) a minimum
leverage ratio of Tier I capital to average total assets. The
minimum leverage ratio is not specifically defined, but is
generally expected to be 4-5 percent for all but the most highly
rated banks, as determined by a regulatory rating system. As of
March 31, 1995, the Corporation had a Tier I Capital to risk-
weighted assets ratio and total capital to risk-weighted assets
ratio of 16.94% and 18.21%, respectively and a minimum leverage
ratio of 9.84%.
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION.
Resignation of Director
Effective March 14, 1995 John I. Whalley resigned
from the Board of Directors of the Corporation. The
resignation was for personal reasons and not the
result of a disagreement with the Corporation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST COMMONWEALTH FINANCIAL CORPORATION
(Registrant)
DATED: MAY 9, 1995 /S/ Joseph E. O'Dell
Joseph E. O'Dell, President and
Chief Executive Officer
DATED: MAY 9, 1995 /S/ John J. Dolan
John J. Dolan, Sr. Vice President,
Comptroller, and Chief Financial
Officer
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