<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
22 North Sixth Street Indiana, PA 15701
(Address of principal executive offices) (Zip Code)
412-349-7220
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate a check mark 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 X No .
Number of shares outstanding of issuer's common stock, $1.00 Par Value as
of May 13, 1996 was 22,253,560.
<PAGE>
<PAGE>
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 . . . . . . . . 10
PART II - OTHER INFORMATION
Other Information . . . . . . . . . . . . . . . . . . . . . . 20
Signatures . . . . . . . . . . . . . . . . . . . . Signature Page
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
March 31, December 31,
1996 1995
ASSETS
Cash and due from banks on demand.... $ 56,552 $ 62,381
Interest-bearing deposits with banks. 9,049 8,288
Federal funds sold .................. 7,740 4,800
Securities available for sale, at
market.............................. 244,002 244,193
Securities held to maturity, at cost,
(market value $492,515 in 1996 and
$503,568 in 1995).................. 496,419 504,509
Loans................................ 1,555,230 1,531,174
Unearned income.................... (41,606) (43,632)
Allowance for possible credit losses (18,475) (18,152)
Net loans....................... 1,495,149 1,469,390
Property and equipment............... 29,933 29,435
Other real estate owned.............. 1,394 1,408
Other assets......................... 42,978 39,903
TOTAL ASSETS.................... $2,383,216 $2,364,307
LIABILITIES
Deposits (all domestic):
Noninterest-bearing................ $ 200,894 $ 200,939
Interest-bearing................... 1,797,412 1,761,821
Total deposits.................. 1,998,306 1,962,760
Short-term borrowings................ 100,243 120,774
Other liabilities.................... 26,734 23,236
Long-term debt....................... 4,993 5,261
Total liabilities............... 2,130,276 2,112,031
SHAREHOLDER'S 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; 22,263,360
and 22,353,728 shares outstanding in
1996 and 1995 respectively......... 22,437 22,437
Additional paid-in capital........... 77,073 77,226
Retained earnings.................... 160,682 157,576
Unrealized gain (loss) on securities
available for sale, net of taxes... (13) 511
Treasury stock (173,268 shares at
March 31, 1996 and 65,002 at
December 31, 1995, at cost)........ (2,962) (929)
Unearned ESOP shares................. (4,277) (4,545)
Total shareholders' equity......... 252,940 252,276
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY.......... $2,383,216 $2,364,307
The accompanying notes are an integral part of these consolidated financial
statements.
3<PAGE>
<PAGE>
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,
1996 1995
Interest Income
Interest and fees on loans........ $33,097 $30,713
Interest and dividends on investments:
Taxable interest................ 9,850 11,009
Interest exempt from Federal
income taxes................... 798 755
Dividends....................... 331 238
Interest on Federal funds sold.... 60 33
Interest on bank deposits......... 134 170
Total Interest Income.......... 44,270 42,918
Interest Expense
Interest on deposits.............. 19,425 16,838
Interest on short-term borrowings. 1,316 2,947
Interest on long-term debt........ 104 163
Total Interest Expense......... 20,845 19,948
Net interest income................. 23,425 22,970
Provision for possible credit losses 900 793
Net interest income after provision
for possible credit losses........ 22,525 22,177
Other Income
Net security gains................ 8 24
Trust income...................... 616 558
Service charges on deposit accounts 1,362 1,314
Other income...................... 955 645
Total Other Income............. 2,941 2,541
Other Expenses
Salaries and employee benefits.... 8,186 7,902
Net occupancy expense............. 1,190 1,107
Furniture and equipment expense... 1,069 1,000
FDIC expense...................... 72 1,065
Other operating expenses.......... 4,476 4,343
Total Other Expenses........... 14,993 15,417
Income before taxes................. 10,473 9,301
Applicable income taxes........... 3,360 3,011
Net Income.......................... $ 7,113 $ 6,290
Average Shares Outstanding.......... 22,004,857 21,982,714
Per Share Data:
Net income.......................... $0.32 $0.29
Cash dividends per share............ $0.18 $0.16
The accompanying notes are an integral part of these consolidated financial
statements.
4<PAGE>
<PAGE>
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, 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 market value of
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
Balance at December 31, 1995.... $22,437 $77,226 $157,576 $ 511 $(4,545) $ (929) $252,276
Net income.................... -0- -0- 7,113 -0- -0- -0- 7,113
Cash dividends declared....... -0- -0- (4,007) -0- -0- -0- (4,007)
Change in market value of
securities available for sale,
net of tax effect........... -0- -0- -0- (524) -0- -0- (524)
Decrease in unearned ESOP shares -0- 10 -0- -0- 268 -0- 278
Discount on dividend reinvestment
plan purchases.............. -0- (120) -0- -0- -0- -0- (120)
Treasury stock acquired....... -0- -0- -0- -0- -0- (2,099) (2,099)
Treasury stock reissued....... -0- (43) -0- -0- -0- 66 23
Balance at March 31, 1996....... $22,437 $77,073 $160,682 $ (13) $(4,277) $(2,962) $252,940
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the 3 Months
Ended March 31,
1996 1995
Operating Activities
Net income....................................... $ 7,113 $ 6,290
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible credit losses.......... 900 793
Depreciation and amortization................. 1,018 1,258
Net gains on sales of assets.................. (263) (25)
Increase in interest receivable............... (293) (695)
Increase in interest payable.................. 657 1,284
Increase in income taxes payable.............. 3,458 2,542
Change in deferred taxes...................... (124) 296
Other-net..................................... (3,194) (3,102)
Net cash provided by operating activities... 9,272 8,641
Investing Activities
Transactions with securities held to maturity:
Sales......................................... -0- -0-
Maturities and redemptions.................... 27,860 7,365
Purchases..................................... (19,541) (2,131)
Transactions with securities available for sale:
Sales......................................... -0- 2,641
Maturities and redemptions.................... 21,574 10,385
Purchases..................................... (22,519) (7,166)
Proceeds from sales of loans and other assets.... 5,805 3,251
Net (increase) decrease in time deposits with
banks........................................... (761) 8,627
Net increase in loans............................ (31,948) (26,095)
Purchases of premises and equipment.............. (1,429) (926)
Net cash used by investing activities.......... (20,959) (4,049)
Financing Activities
Repayments of long-term debt..................... -0- (4)
Discount on dividend reinvestment plan purchases. (120) (78)
Dividends paid................................... (4,027) (3,589)
Net increase (decrease) in deposits.............. 35,552 (4,784)
Net (decrease) increase in federal funds
purchased....................................... (31,235) 21,865
Net increase (decrease) in other short-term
borrowings...................................... 10,704 (22,561)
Treasury stock acquired.......................... (2,099) (1,073)
Reissuance of treasury stock..................... 23 -0-
Net cash provided (used) by financing
activities................................. 8,798 (10,224)
Net decrease in cash and cash equivalents.. (2,889) (5,632)
Cash and cash equivalents at January 1............. 67,181 66,055
Cash and cash equivalents at March 31.............. $64,292 $60,423
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(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, 1996 and the results of
operations for the three month periods ended March 31, 1996 and
1995, and statements of cash flows and changes in shareholders'
equity for the three month periods ended March 31, 1996 and 1995.
The results of the three months ended March 31, 1996 and 1995 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)
1996 1995
Cash paid during the first three
months of the year for:
Interest $20,188 $18,664
Income Taxes $ -0- $ 148
Noncash investing and financing
activities:
ESOP borrowings $ -0- $ 500
ESOP loan reductions $ 267 $ 267
Gross increase (decrease) in
market value adjustment to
securities available for sale
pursuant to FAS No. 115 $ (807) $ 9,838
Loans transferred to other real
estate owned and repossessed
assets $ 454 $ 1,033
NOTE 3 New Accounting Pronouncements
The Corporation adopted the Financial Accounting Standards Board
Statement No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("FAS No.
121") effective January 1, 1996. This statement requires long-
lived assets, such as premises and equipment to be reviewed for
impairment whenever events or changes in circumstances, such as a
significant decrease in the market value of an asset or the
extent or manner in which an asset is used indicate that the
carrying amount of an asset may not be recoverable. If there is
an indication that the carrying amount of an asset may not be
recoverable, future cash flows expected to result from the use of
the asset are estimated. If the sum of the expected cash flows
is less than the carrying value of the asset a loss is recognized
for the difference between the carrying value and fair market
value of the asset. Adoption of this statement did not have a
material impact on the Corporation's financial condition or
results of operations.
7<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
NOTE 3 New Accounting Pronouncements (Continued)
Effective January 1, 1996 the Corporation adopted the Financial
Accounting Standards Board Statement No. 122 "Accounting for
Mortgage Servicing Rights an amendment of FASB Statement No. 65"
("FAS No. 122"). This statement eliminates the accounting
distinction between rights to service mortgage loans for others
that are acquired through loan origination activities from those
servicing rights acquired through purchase transactions. When a
mortgage banking enterprise purchases or originates mortgage
loans with a definitive plan to sell or securitize those loans
and retain the mortgage servicing rights, the corporation must
measure the mortgage servicing rights at cost by allocating the
cost of the mortgage loans between the mortgage servicing rights
and the mortgage loans (without the mortgage servicing rights)
based on their relative fair values at the date of purchase or
origination. When the mortgage banking enterprise does not have
a definitive plan at the purchase or origination date and later
sells or securitizes the mortgage loans and retains the mortgage
servicing rights, the Corporation must allocate the amortized
cost of the mortgage loans between the mortgage servicing rights
and the mortgage loans (without mortgage servicing rights) based
on their relative fair values at the date of sale. The amount
capitalized as the right to service mortgage loans is recognized
as a separate asset and amortized in proportion to, and over the
period of, estimated net servicing income (servicing revenue in
excess of servicing cost). FAS No. 122 also requires mortgage
servicing rights to be periodically evaluated for impairment.
The adoption of FAS No. 122 did not have a material impact on the
Corporation's financial condition or results of operations.
The Corporation adopted the Financial Accounting Standards Board
Statement No. 123 "Accounting for Stock Based Compensation" ("FAS
No. 123") effective January 1, 1996. This statement defines a
method of measuring stock based compensation, such as stock
options granted, at an estimated fair value. FAS No. 123 also
permits the continued measurement of stock based compensation
under provisions of the Accounting Practice Board Opinion 25
"Accounting for Stock Issued to Employees" ("APB 25").
Corporations electing to measure stock based compensation under
APB 25 are required to disclose, in a footnote to the financial
statements, net income and earnings per share determined as if
the fair value methodology of FAS No. 122 was implemented. The
Corporation granted no stock options or other stock based
compensation during the first quarter of 1996, therefore adoption
of FAS No. 122 had no impact on the Corporation's financial
condition or results of operations.
NOTE 4 Subsequent Event
Effective April 1, 1996 the Corporation acquired all of the
outstanding common stock of BSI Financial Services Inc.,
headquartered in Titusville, PA for cash and stock consideration
aggregating $1.2 million. BSI provides mortgage banking, loan
servicing and collection services to the Corporation's subsidiary
8<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
NOTE 4 Subsequent Event (Continued)
banks as well as unaffiliated organizations. The acquisition was
accounted for as a purchase transaction, whereby the identifiable
tangible and intangible assets and liabilities of BSI were
recorded at their fair values at the acquisition date. Under the
purchase method of accounting, the results of operations of BSI
from the date of acquisition will be included in the
Corporation's financial statements.
9<PAGE>
<PAGE>
ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Three Months of 1996 as Compared to the First Three Months
of 1995
Net income in the three months of 1996 was $7.1 million, an
increase of $823 thousand over the 1995 level of $6.3 million.
Earnings per share was $0.32 for the three months of 1996
reflecting an increase of $0.03 over the 1995 level of $0.29.
Return on average assets was 1.21% and return on average equity
was 11.20% during the 1996 period, compared to 1.09% and 11.09%,
respectively during the same period of 1995.
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
$23.4 million for the three months of 1996 compared to $23.0
million for 1995. Both interest income and interest expense for
1996 increased over 1995 levels, reflecting increased volumes for
both interest-earning assets and interest-bearing liabilities.
Net interest margin (net interest income, on a tax-equivalent
basis, as a percentage of average earning assets) remained stable
for the 1996 period at 4.30%, reflecting a decrease of 3 basis
points (0.03%) from 4.33% reported in 1995.
Interest and fees on loans increased $2.4 million, while interest
income on investments decreased $1.0 million when compared to the
corresponding period of 1995, primarily as a result of volume
increases in loans and decreases in investments. Yields on both
loans and investments remained stable for the 1996 period
reflecting declines of 8 basis points (0.08%) and 4 basis points
(0.04%) respectively over the 1995 period.
Interest on deposits increased $2.6 million for the 1996 period
compared to the 1995 quarter, reflecting both increases due to
volume and increases due to rate. Total cost of deposits
increased 32 basis points (0.32%) over the 1995 period as a
result of increases in all categories of certificates of deposit
in denominations less than $100 thousand, most notably those with
maturities ranging from 6 to 36 months. Interest expense on
short-term borrowings decreased $1.6 million compared to the 1995
period, primarily as a result of a de-leveraging strategy during
the second quarter of 1995 which reduced borrowings. In addition
the Corporation has not incurred additional borrowings during
1996 as a result of the Corporation's ability to fund loan growth
through deposits.
Average interest-earning assets were 95.8% of average total
assets in the 1996 period and 94.9% during the 1995 time frame.
Average interest-bearing liabilities decreased as a percentage of
average total assets to 80.3% for the 1996 period compared to
81.5% during the related 1995 period.
10<PAGE>
<PAGE>
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 1996 as Compared to the First Three Months
of 1995 (Continued)
The provision for possible credit losses was $900 thousand for
the three month period of 1996 compared to $793 thousand during
the 1995 period. Net charge-offs against the allowance for
possible credit losses were $577 thousand in the 1996 period and
$803 thousand in the 1995 period. The 1996 decline in net
charge-offs reflects a strengthening of the Corporation's
commercial loan portfolio. Net charge-offs for commercial loans
including those secured by real estate declined by $305 thousand
compared to the related period of 1995. See the "Credit Review"
section for an analysis of the quality of the loan portfolio.
Below is an analysis of the consolidated allowance for possible
credit losses for the three month periods ended March 31, 1996
and 1995.
1996 1995
Balance January 1, $18,152 $17,337
Loans charged off:
Commercial, financial and
agricultural 94 289
Real estate-construction -0- -0-
Real estate-commercial -0- 139
Real estate-residential 30 80
Loans to individuals 599 549
Lease financing receivables 21 5
Total loans charged off 744 1,062
Recoveries of previously
charged off loans:
Commercial, financial and
agricultural 21 50
Real estate-construction 17 -0-
Real estate-commercial -0- 13
Real estate-residential 9 8
Loans to individuals 119 101
Lease financing receivables 1 87
Total recoveries 167 259
Net charge offs 577 803
Provision charged to operations 900 793
Balance March 31, $18,475 $17,327
11<PAGE>
<PAGE>
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 1996 as Compared to the First Three Months
of 1995 (Continued)
Other operating income increased $400 thousand in 1996 to $2.9
million. Net securities gains decreased $16 thousand and
reflected calls of securities both held to maturity and available
for sale, but no sales activity during the 1996 period. Other
income was $955 thousand in the 1996 period, an increase of $310
thousand over the $645 thousand reported in 1995. The most
notable components of the increase in other income were gains on
sale of loans totalling $188 thousand and increases in ATM and
charge card user fees totalling $139 thousand.
Noninterest expense was $15.0 million in the three months of 1996
which reflected a decrease of $424 thousand over the 1995 period.
Total noninterest expense was 2.56% of average assets during the
1996 period compared to 2.68% for the 1995 related time frame.
The major component of this decrease was the deposit insurance
assessment from the Federal Deposit Insurance Corporation
("FDIC") which decreased by $993 thousand in 1996 from $1.1
million reported in 1995. The 1996 amount represents the minimum
FDIC assessment for the Corporation's commercial bank subsidiary
combined with a regular assessment against thrift deposits of the
Corporation. The additional one-time assessment against the
Corporation's thrift deposits which was anticipated as a result
of the Savings and Loan Insurance Fund remaining underfunded has
not yet been enacted.
Employee costs were $8.2 million in 1996, representing 1.39% of
average assets on an annualized basis compared to $7.9 million
and 1.37% of average assets on an annualized basis for 1995.
Employee cost increases can be attributed to an increase in the
number of full time equivalent employees which resulted in higher
salaries and payroll taxes. The increase in full time equivalent
employees during 1996 occurred in customer contact positions,
most notably staffing levels of the Corporation's "Convenience
Banking Center". This center is open for extended hours during
the week and on weekends to provide customers with a wide array
of financial services through the use of telephone banking. The
1996 period also reflects an increase in the employers matching
contribution for the Corporation's 401(k) plan to 80% of the
amount contributed by the employee up from 60% in 1995. Employee
benefit cost increases for 1996 were partially offset by a
reduction in hospitalization costs as a result of the
Corporation's conversion to a managed health care plan effective
in January.
Other operating expenses increased $133 thousand in 1996 to $4.5
million. Loan collection and repossession expenses represented
an increase of $131 thousand over the 1995 levels while outside
data processing costs increased $76 thousand. Telephone cost
increases reflected usage increases for both voice and data lines
combined with rate decreases. The merger of the Corporation's
eight commercial bank subsidiaries during the fourth quarter of
1995 has begun to impact several expense categories in the
current period.
12<PAGE>
<PAGE>
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 1996 as Compared to the First Three Months
of 1995 (Continued)
Income tax expense was $3.4 million during the three months of
1996 compared to $3.0 million during the 1995 period. Income
before taxes increased $1.2 million in the 1996 period when
compared to the corresponding period of 1995. The Corporation's
effective tax rate was 32.1% for the 1996 period and compared to
32.4% for 1995, reflecting an increase in tax-free income.
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 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, 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.
Net loans increased $25.8 million in the first three months of
1996 as specialized loan products and target marketing strategies
generated results. Municipal loans increased by $12.7 million
during the three months of 1996 while residential mortgages
increased by $9.8 million. Loan growth for the period was funded
primarily by deposit growth. Total deposits grew $35.5 million
as time deposit categories increased and demand deposits
decreased. Growth in time deposits with maturities of 1 to 2
years which began during 1995 has continued during 1996,
resulting in an increase of $23.2 million. Additional increases
during 1996 occurred in time deposits in denominations of $100
thousand or more, primarily as a result of an increase in public
funds. Investment securities held to maturity declined $8.1
million while Federal funds sold increased $2.9 million since
December 31, 1995.
Marketable equity securities that the Corporation holds in its
investment portfolio are an additional source of liquidity.
These securities are classified as "securities available for
sale" and 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
March 31, 1996 securities available for sale had an amortized
cost of $243.6 million and an approximate fair value of $244.0
million. The approximate fair value of securities available for
sale declined slightly since the end of 1995 as interest rates
began to rise.
13<PAGE>
<PAGE>
ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY (Continued)
Interest Sensitivity
The objective of interest rate sensitivity management is to
maintain an appropriate balance between the stable growth of
income and the risks associated with maximizing income through
interest sensitivity imbalances. While no single number can
accurately describe the impact of changes in interest rates on
net interest income, interest rate sensitivity positions, or
"gaps", when measured over a variety of time periods, may be
helpful.
An asset or liability is considered to be interest-sensitive if
the rate it yields or bears is subject to change within a
predetermined time period. If interest-sensitive assets ("ISA")
exceed 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 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 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, NOW accounts and short-term borrowings.
14<PAGE>
<PAGE>
ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY (Continued)
Interest Sensitivity (Continued)
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, 1996 and December 31, 1995.
March 31, 1996
0-90 91-180 181-365 Cumulative
Days Days Days 0-365 Days
Loans.................... $ 528,253 $ 90,883 $164,608 $ 783,744
Investments.............. 42,013 27,849 43,332 113,194
Other interest-earning
assets.................. 86,573 4,841 7,864 99,278
Total interest-sensitive
assets................ 656,839 123,573 215,804 996,216
Certificates of deposits. 229,043 147,927 233,530 610,500
Other deposits........... 678,351 -0- -0- 678,351
Borrowings............... 75,755 2,030 6,234 84,019
Total interest-sensitive
liabilities........... 983,149 149,957 239,764 1,372,870
GAP.................... $(326,310) $(26,384) $(23,960) $ (376,654)
ISA/ISL.................. 0.67 0.82 0.90 0.73
Gap/Total assets......... -13.69% -1.11% -1.01% -15.80%
December 31, 1995
0-90 91-180 181-365 Cumulative
Days Days Days 0-365 Days
Loans.................... $ 515,833 $ 82,754 $167,780 $ 766,367
Investments.............. 18,351 33,319 42,960 94,630
Other interest-earning
assets.................. 91,408 6,698 6,272 104,378
Total interest-sensitive
assets................ 625,592 122,771 217,012 965,375
Certificates of deposits. 223,659 130,053 257,833 611,545
Other deposits........... 680,303 -0- -0- 680,303
Borrowings............... 102,527 10,164 6,838 119,529
Total interest-sensitive
liabilities........... 1,006,489 140,217 264,671 1,411,377
GAP....................$ (380,897) $(17,446) $(47,659) $ (446,002)
ISA/ISL.................. 0.62 0.88 0.82 0.68
Gap/Total assets......... -16.11% -0.74% -2.02% -18.86%
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.
15<PAGE>
<PAGE>
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 lag in a deposit rate increase. The
repricing strategies for loans would be inversely related.
The analysis at March 31, 1996, 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,
1996 1995
(amounts in thousands)
Nonperforming Loans:
Loans on nonaccrual basis $ 7,761 $ 9,461
Past due loans 7,622 7,076
Renegotiated loans 288 709
Total nonperforming loans $ 15,671 $ 17,246
Other real estate owned $ 1,394 $ 2,497
Loans outstanding at end of period $1,513,624 $1,399,652
Average loans outstanding (year-to-date) $1,498,477 $1,390,093
Nonperforming loans as percent of
total loans 1.04% 1.23%
Provision for possible credit losses $ 900 $ 793
Net charge-offs $ 577 $ 803
Net charge-offs as percent of
average loans 0.04% 0.06%
Provision for possible credit losses as
percent of net charge-offs 155.98% 98.75%
Allowance for possible credit losses as
percent of average loans outstanding 1.23% 1.25%
Allowance for possible credit losses as
percent of nonperforming loans 117.89% 100.47%
16<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, 1996, there
were no significant concentrations of credit.
The ratio of the allowance for possible credit losses as a
percentage of nonperforming loans continues to improve,
reflecting an increase since year end as well as in comparison to
March 1995. Although this ratio remains lower than the
Corporation's peers at March 31, 1996, 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. The provision for possible credit
losses for the three months of 1996 exceeds that reported for
1995 while net charge-offs and nonperforming loans have declined.
As a result the allowance for possible credit losses as a
percentage of nonperforming loans and the provision for possible
credit losses as a percentage of net charge-offs have both
increased over 1995. Management believes that the allowance for
possible credit losses and nonperforming loans remain safely
within acceptable levels during 1996.
The Corporation considers a loan to be impaired when, based on
current information and events, it is probable that the
Corporation will be unable to collect principal or interest due
according to the contractual terms of the loan. Loan impairment
is 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.
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 the
expected cash flows, income is recorded on a cash basis.
As of March 31, 1996, the Corporation had a recorded investment
in impaired loans of $8.0 million which included loans on a
nonaccrual basis and renegotiated loans. The average balance of
impaired loans for the three month period was $8.2 million. An
allocation of the allowance for possible credit losses in the
amount of $665 thousand relates to $4.0 million of the impaired
loans. Impaired loans totalling $4.0 million have no allowance
allocation, in accordance with the Financial Accounting Standards
Board Statement No. 118 "Accounting by Creditors for Impairment
of a Loan Income Recognition and Disclosures." Income earned on
impaired loans during the first three months of 1996 was $8
thousand.
17<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 $664 thousand in the first three months
of 1996. Dividends declared reduced equity by $4.0 million, an
increase over the 1995 period as the dividend rate was increased.
Earnings retention was $3.1 million, representing an earnings
retention rate of 43.7%. The retained net income remains in
permanent capital to fund future growth and expansion. Payments
by the Corporation's Employee Stock Ownership Plan (the "ESOP")
to reduce debt it incurred to acquire the Corporation's common
stock for future distribution as employee compensation, net of
fair value adjustments to Unearned ESOP shares, increased equity
by $278 thousand. Amounts paid to fund the discount on
reinvested dividends and optional cash payments reduced equity by
$120 thousand. The market value adjustment to securities
available for sale reduced equity by $524 thousand. The cost of
purchasing treasury shares net of the reissuance of treasury
shares to provide for stock options exercised, decreased equity
by $2.1 million.
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 3-5 percent for all but the most highly
rated banks, as determined by a regulatory rating system.
18<PAGE>
<PAGE>
ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAPITAL RESOURCES (Continued)
The table below presents the Corporation's capital position at
March 31, 1996:
Percent
Amount of Adjusted
(in thousands) Assets
Tier I Capital $239,692 16.3%
Risk-Based Requirement 58,880 4.0
Total Capital 258,235 17.6
Risk-Based Requirement 117,760 8.0
Minimum Leverage Capital 239,692 10.2
Minimum Leverage Requirement 93,695 4.0
At March 31, 1996 the Corporation and its banking subsidiaries
are considered well capitalized as defined by the Federal Deposit
Insurance Corporation Improvement Act of 1991.
19<PAGE>
<PAGE>
FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were 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 a material adverse effect on the
consolidated operations or financial position of the
Corporation and its subsidiaries.
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.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.
20 <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 14, 1996 /S/ Joseph E. O'Dell
Joseph E. O'Dell, President and
Chief Executive Officer
DATED: MAY 14, 1996 /S/ John J. Dolan
John J. Dolan, Sr. Vice President,
Comptroller, and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 56,552
<INT-BEARING-DEPOSITS> 9,049
<FED-FUNDS-SOLD> 7,740
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 244,002
<INVESTMENTS-CARRYING> 496,419
<INVESTMENTS-MARKET> 492,515
<LOANS> 1,555,230
<ALLOWANCE> 18,475
<TOTAL-ASSETS> 2,383,216
<DEPOSITS> 1,998,306
<SHORT-TERM> 100,243
<LIABILITIES-OTHER> 26,734
<LONG-TERM> 4,993
0
0
<COMMON> 22,437
<OTHER-SE> 230,503
<TOTAL-LIABILITIES-AND-EQUITY> 2,383,216
<INTEREST-LOAN> 33,097
<INTEREST-INVEST> 10,979
<INTEREST-OTHER> 194
<INTEREST-TOTAL> 44,270
<INTEREST-DEPOSIT> 19,425
<INTEREST-EXPENSE> 20,845
<INTEREST-INCOME-NET> 23,425
<LOAN-LOSSES> 900
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 14,993
<INCOME-PRETAX> 10,473
<INCOME-PRE-EXTRAORDINARY> 7,113
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,113
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
<YIELD-ACTUAL> 4.30
<LOANS-NON> 7,761
<LOANS-PAST> 7,622
<LOANS-TROUBLED> 288
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 18,152
<CHARGE-OFFS> 744
<RECOVERIES> 167
<ALLOWANCE-CLOSE> 18,475
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
