First Commonwealth Announces Third Quarter 2006 Financial Results

INDIANA, Pa., Oct. 19 /PRNewswire-FirstCall/ -- First Commonwealth Financial Corporation reported financial results for the third quarter ended September 30, 2006.

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

Net income was $15.4 million for the third quarter of 2006 compared to $13.0 million for the third quarter of 2005. Basic and diluted earnings per share were $0.22 for the third quarter of 2006 compared to $0.19 for the comparable period of 2005. Return on average equity was 11.29% and return on average assets was 1.02% for the third quarter of 2006 compared to 9.62% and 0.83% respectively for the third quarter of 2005. The increase in net income in the third quarter 2006 was mainly due to a restructuring charge in 2005 not incurred in 2006 and a gain on the early extinguishment of debt. Net interest margin improved for the three months ended September 30, 2006 compared to the same period in 2005. However, the net interest margin increase was offset by lower levels of interest earning assets which contributed to the decrease in net interest income.

Third quarter of 2006 results did not include a $2.7 million pre-tax restructuring charge taken in the third quarter of 2005 ($1.8 million after tax or $0.03 per diluted share). For the three months ended September 30, 2006, a $1.3 million gain was recognized on an early extinguishment of debt which was offset by lower net interest income of $756 thousand and a higher provision for credit losses of $188 thousand as compared to the same period in 2005.

In the third quarter of 2006, First Commonwealth continued its expansion in the Pittsburgh region through:

- The completion of the merger with Laurel Capital Group, Inc. (Laurel), headquartered in Allison Park, Pennsylvania on August 28, 2006. Laurel, with total assets of approximately $314 million, was the parent company of Laurel Savings Bank which operated eight retail branches in Allegheny and Butler Counties, Pennsylvania. - Opening two new branch offices in the Pittsburgh-area market as well as beginning construction on one new branch office and launching a significant relocation of an existing branch. Year-to-Date Results

Net income for the first nine months of 2006 was $40.6 million compared to $46.1 million for the same period of 2005. Basic and diluted earnings per share were $0.58 for the first nine months of 2006 compared to $0.67 and $0.66, respectively for the first nine months of 2005. Return on average equity and return on average assets for the nine months ended September 30, 2006 were 10.23% and 0.91% compared to 11.53% and 0.99%, respectively in the 2005 period.

The decrease in net income was due to a $6.6 million decline in net interest income as well as other non-recurring items that occurred in 2005 including a $3.1 million pre-tax gain on the sale of a branch office ($2.0 million after tax) and a $2.0 million gain on the sale of the merchant services business ($1.3 million after tax) coupled with the elimination of merchant discount income of $2.1 million. These decreases were largely offset by reductions in other operating expenses of $2.7 million, the lack of $2.7 million in restructuring charges incurred in 2005, a $1.6 million gain on the early extinguishment of debt and a lower effective tax rate.

The provision for credit losses increased $650 thousand in the first nine months of 2006 compared to the same period of 2005.

Net Interest Income

Net interest income for the third quarter of 2006 decreased $756 thousand to $42.3 million from $43.0 million in the third quarter of 2005. Third quarter 2006 net interest margin (net interest income as a percentage of average earning assets on a fully tax equivalent basis) increased 12 basis points (0.12%) to 3.34%, compared to 3.22% in the corresponding period last year. The improvement in net interest margin was primarily due to an increase in loan yields and a reduction in short-term borrowings and long-term debt offset by an increase in rates on interest bearing liabilities. Due to the relatively flat yield curve First Commonwealth has limited the reinvestment of investment securities proceeds and reduced borrowings. Additionally, liquid assets of approximately $75 million acquired from Laurel were used to reduce short-term borrowings. Interest income for the three month period ended September 30, 2006 increased $6.2 million over the prior year period. However, interest expense increased $7.0 million as increases in interest rates on deposits and borrowings exceeded increases in interest rates earned on loans and investments.

Net interest income for the first nine months of 2006 was $125.0 million compared to $131.6 million for the comparable 2005 period. Net interest margin increased two basis points (0.02%) to 3.32% in the first nine months of 2006 compared to the same period of 2005. Interest income increased $14.5 million for the nine month period ended September 30, 2006 compared to the prior year period. However, interest expense increased $21.1 million as rate increases on interest bearing liabilities were higher than rate increases on interest earning assets. The net interest margin improvement was also offset by lower levels of interest earning assets which contributed to the decrease in net interest income.

Non-Interest Income

Non-interest income for the third quarter of 2006 rose $830 thousand to $12.4 million from $11.6 million in the third quarter of 2005 primarily due to a gain on the extinguishment of debt in the amount of $1.3 million. This gain resulted from a Federal Home Loan Bank advance that was called by the issuer pursuant to the terms of the advance.

Year-to-date non-interest income decreased in 2006 primarily due to the above mentioned gains and reduction in merchant discount income occurring in 2005 in addition to lower insurance commissions and other operating income in 2006. Other operating income decreased $1.1 million due to lower gains recorded on sales of mortgage and student loans and other real estate owned. This decrease was partly offset by the gain on the extinguishment of debt, as well as increases in card related interchange income (which includes income on debit, credit and ATM cards that are issued to consumers and/or businesses) and service charges on deposits. The increase in service charges on deposits was primarily due to increased fee schedules.

Non-Interest Expense

Total non-interest expense for the third quarter of 2006 decreased $2.9 million to $33.4 million from $36.3 million in the corresponding quarter last year primarily due to the above mentioned restructuring charge. Salaries and employee benefits declined $630 thousand in the third quarter 2006 from the third quarter 2005 level, reflecting a previously planned reduction of the workforce which was partially offset by the inclusion of $125 thousand due to the Laurel acquisition.

Total non-interest expense decreased $4.5 million during the first nine months of 2006 to $102.3 million compared to the same period in 2005 largely as a result of the above mentioned restructuring charge. Lower salary expense for the nine month period ended September 30, 2006 was offset by a rise in the cost of employee benefits. Other operating expenses decreased $2.7 million year-to-date in 2006 when compared to the same period of 2005 primarily due to the elimination of plastic card interchange expense totaling $1.5 million and a reduction of $722 thousand in other professional fees. Plastic card interchange expenses are no longer incurred since the merchant services business was sold in 2005.

Credit Quality and Provision for Credit Losses

As of September 30, 2006, total nonperforming loans (including loans past due 90 days but still accruing) increased to $29.2 million from the $25.8 million at September 30, 2005. The increase of $3.7 million in nonaccrual loans since September 30, 2005 resulted primarily from one commercial credit relationship during the first quarter of 2006. Management believes that the allowance for credit losses is at a level deemed sufficient to absorb losses inherent in the loan portfolio at September 30, 2006.

Net charge-offs reduced the allowance for credit losses by $2.0 million in the third quarter of 2006. The provision for credit losses was $3.0 million for the third quarter of 2006 compared to $2.9 million in the third quarter of 2005.

The $8.2 million provision for credit losses for the first nine months of 2006 exceeded net charge-offs by $614 thousand. The provision for credit losses for the nine month period of 2006 exceeded the provision for credit losses for the nine month period of 2005 by $650 thousand.

About First Commonwealth Financial Corporation

First Commonwealth Financial Corporation is a $6.1 billion bank holding company headquartered in Indiana, Pennsylvania. It operates 111 retail branch offices in 15 counties in western and central Pennsylvania through First Commonwealth Bank, a Pennsylvania chartered bank and trust company. Financial services and insurance products are also provided through First Commonwealth Insurance Agency and First Commonwealth Financial Advisors, Inc.

Forward-Looking Statements

This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe First Commonwealth's future plans, strategies and expectations and are based on assumptions and involve risks and uncertainties, many of which are beyond the control of First Commonwealth and which may cause actual results, performance or achievements to differ materially from the results, performance or achievements contemplated by the forward-looking statements. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate" or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could" or "may." Forward-looking statements speak only as of the date they are made. Such risks and uncertainties include among other things:

- Adverse changes in the economy or business conditions, either nationally or in First Commonwealth's market areas, could increase credit-related losses and expenses and/or limit growth. - Increases in defaults by borrowers and other delinquencies could result in increases in First Commonwealth's provision for losses on loans and related expenses. - Fluctuations in interest rates and market prices could reduce net interest margin and asset valuations and increase expenses. - Changes in legislative or regulatory requirements applicable to First Commonwealth and its subsidiaries could increase costs, limit certain operations and adversely affect results of operations. - Other risks and uncertainties described in First Commonwealth's reports filed with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K. FIRST COMMONWEALTH FINANCIAL CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (Dollar Amounts in Thousands, except per share data) For the Quarter For the Nine Months Ended Ended September 30, September 30, 2006 2005 2006 2005 Interest income $85,457 $79,248 $246,931 $232,425 Interest expense 43,179 36,214 121,913 100,819 Net interest income 42,278 43,034 125,018 131,606 Provision for credit losses 3,038 2,850 8,244 7,594 Net interest income after provision for credit losses 39,240 40,184 116,774 124,012 Net securities gains 5 34 87 519 Trust income 1,482 1,417 4,357 4,198 Service charges on deposits 4,361 4,226 12,374 11,775 Gain on sale of branch 0 0 0 3,090 Gain on sale of merchant services business 0 0 0 1,991 Gain on extinguishment of debt 1,283 0 1,553 0 Insurance commissions 801 1,089 2,115 2,832 Income from bank owned life insurance 1,451 1,359 4,240 4,035 Merchant discount income 0 353 0 2,074 Card related interchange income 1,398 1,265 4,087 3,568 Other operating income 1,609 1,817 4,939 6,067 Total non-interest income 12,390 11,560 33,752 40,149 Salaries and employee benefits 17,690 18,320 54,282 54,482 Net occupancy expense 2,845 2,671 9,032 8,378 Furniture and equipment expense 2,998 2,844 8,680 8,473 Data processing expense 903 818 2,518 2,738 Pennsylvania shares tax expense 1,349 1,236 4,057 3,739 Intangible amortization 658 565 1,789 1,696 Restructuring charges 0 2,704 0 2,704 Other operating expense 6,999 7,145 21,899 24,558 Total non-interest expense 33,442 36,303 102,257 106,768 Income before income taxes 18,188 15,441 48,269 57,393 Applicable income taxes 2,796 2,445 7,713 11,340 Net income $15,392 $12,996 $40,556 $46,053 Average shares outstanding 70,875,018 69,242,056 70,004,534 69,239,005 Average shares outstanding assuming dilution 71,177,930 69,787,884 70,382,511 69,834,460 Per Share Data: Basic earnings per share $0.22 $0.19 $0.58 $0.67 Diluted earnings per share $0.22 $0.19 $0.58 $0.66 Cash dividends per share $0.170 $0.165 $0.510 $0.495 FIRST COMMONWEALTH FINANCIAL CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (Dollar Amounts in Thousands, except per share data) September 30, December 31, 2006 2005 Assets Cash and due from banks $95,151 $84,555 Interest-bearing bank deposits 7,986 473 Federal funds sold 0 1,575 Securities available for sale, at fair value 1,649,506 1,851,986 Securities held to maturity, at amortized cost (Market value $81,574 in 2006 and $89,804 in 2005) 79,841 87,757 Loans held for sale 0 1,276 Loans: Portfolio loans 3,818,846 3,623,102 Unearned income (70) (119) Allowance for credit losses (42,085) (39,492) Net loans 3,776,691 3,583,491 Premises and equipment 68,518 60,860 Other real estate owned 1,911 1,655 Goodwill 159,889 122,702 Amortizing intangibles, net 18,262 15,251 Other assets 234,784 214,739 Total assets $6,092,539 $6,026,320 Liabilities Deposits (all domestic): Noninterest-bearing $538,986 $491,644 Interest-bearing 3,779,956 3,504,908 Total deposits 4,318,942 3,996,552 Short-term borrowings 494,877 665,665 Other liabilities 45,308 43,314 Subordinated debentures 108,250 108,250 Other long-term debt 556,194 691,494 Total long-term debt 664,444 799,744 Total liabilities 5,523,571 5,505,275 Shareholders' Equity Common stock $1 par value per share 75,100 71,978 Additional paid-in capital 208,621 173,967 Retained earnings 322,583 318,569 Accumulated other comprehensive loss (9,065) (9,655) Treasury stock (16,171) (20,214) Unearned ESOP shares (12,100) (13,600) Total shareholders' equity 568,968 521,045 Total liabilities and shareholders' equity $6,092,539 $6,026,320 Shares issued 75,100,431 71,978,568 Shares outstanding 73,819,900 70,377,916 Treasury shares 1,280,531 1,600,652 Book value per share $7.71 $7.40 Market value per share $13.03 $12.93 FIRST COMMONWEALTH FINANCIAL CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (Dollar Amounts in Thousands) Quarter To Date Average Balance Sheets and Net Interest Analysis At September 30, 2006 Average Income/ Yield or Balance Expense Rate (a) Assets Interest-earning assets: Time deposits with banks $3,684 $15 1.60% Tax free investment securities 280,926 3,215 6.98% Taxable investment securities 1,446,629 17,635 4.84% Federal funds sold 1,243 17 5.35% Loans, net of unearned income(b)(c)(d) 3,729,622 64,575 7.08% Total interest-earning assets 5,462,104 85,457 6.48% Noninterest-earning assets: Cash 80,791 Allowance for credit losses (40,438) Other assets 457,991 Total noninterest-earning assets 498,344 Total Assets $5,960,448 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits(e) $596,874 $2,945 1.96% Savings deposits(e) 1,119,224 5,551 1.97% Time deposits 1,891,777 19,758 4.14% Short-term borrowings 606,140 7,338 4.80% Long-term debt 670,523 7,587 4.49% Total interest-bearing liabilities 4,884,538 43,179 3.51% Noninterest-bearing liabilities and capital: Noninterest-bearing demand deposits(e) 503,611 Other liabilities 31,312 Shareholders' equity 540,987 Total noninterest-bearing funding sources 1,075,910 Total Liabilities and Shareholders' Equity $5,960,448 Net Interest Income and Net Yield on Interest-Earning Assets $42,278 3.34% (a) Yields on interest-earning assets have been computed on a tax equivalent basis using the 35% Federal income tax statutory rate. (b) Average balance includes loans held for sale. (c) Income on nonaccrual loans is accounted for on the cash basis, and the loan balances are included in interest-earning assets. (d) Loan income includes net loan fees. (e) Average balances do not include reallocations from noninterest-bearing demand deposits and interest-bearing demand deposits into savings deposits which were made for regulatory purposes. FIRST COMMONWEALTH FINANCIAL CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (Dollar Amounts in Thousands) Quarter To Date Average Balance Sheets and Net Interest Analysis At September 30, 2005 Average Income/ Yield or Balance Expense Rate (a) Assets Interest-earning assets: Time deposits with banks $706 $8 4.70% Tax free investment securities 284,993 3,244 6.95% Taxable investment securities 1,830,229 19,057 4.13% Federal funds sold 1,456 12 3.41% Loans, net of unearned income(b)(c)(d) 3,633,852 56,927 6.42% Total interest-earning assets 5,751,236 79,248 5.72% Noninterest-earning assets: Cash 82,298 Allowance for credit losses (42,036) Other assets 429,738 Total noninterest-earning assets 470,000 Total Assets $6,221,236 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits(e) $571,916 $1,456 1.01% Savings deposits(e) 1,334,392 5,164 1.54% Time deposits 1,656,868 14,265 3.42% Short-term borrowings 768,281 6,437 3.32% Long-term debt 831,864 8,892 4.24% Total interest-bearing liabilities 5,163,321 36,214 2.78% Noninterest-bearing liabilities and capital: Noninterest-bearing demand deposits(e) 497,754 Other liabilities 24,201 Shareholders' equity 535,960 Total noninterest-bearing funding sources 1,057,915 Total Liabilities and Shareholders' Equity $6,221,236 Net Interest Income and Net Yield on Interest-Earning Assets $43,034 3.22% (a) Yields on interest-earning assets have been computed on a tax equivalent basis using the 35% Federal income tax statutory rate. (b) Average balance includes loans held for sale. (c) Income on nonaccrual loans is accounted for on the cash basis, and the loan balances are included in interest-earning assets. (d) Loan income includes net loan fees. (e) Average balances do not include reallocations from noninterest-bearing demand deposits and interest-bearing demand deposits into savings deposits which were made for regulatory purposes. FIRST COMMONWEALTH FINANCIAL CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (Dollar Amounts in Thousands) Year To Date Average Balance Sheets and Net Interest Analysis At September 30, 2006 Average Income/ Yield or Balance Expense Rate (a) Assets Interest-earning assets: Time deposits with banks $1,856 $39 2.80% Tax free investment securities 281,099 9,664 7.07% Taxable investment securities 1,507,189 53,776 4.77% Federal funds sold 2,157 76 4.73% Loans, net of unearned income(b)(c)(d) 3,677,352 183,376 6.87% Total interest-earning assets 5,469,653 246,931 6.30% Noninterest-earning assets: Cash 78,257 Allowance for credit losses (39,802) Other assets 440,355 Total noninterest-earning assets 478,810 Total Assets $5,948,463 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits(e) $578,556 $7,321 1.69% Savings deposits(e) 1,142,829 15,673 1.83% Time deposits 1,818,346 53,826 3.96% Short-term borrowings 610,216 20,324 4.45% Long-term debt 750,005 24,769 4.42% Total interest-bearing liabilities 4,899,952 121,913 3.33% Noninterest-bearing liabilities and capital: Noninterest-bearing demand deposits(e) 489,219 Other liabilities 29,018 Shareholders' equity 530,274 Total noninterest-bearing funding sources 1,048,511 Total Liabilities and Shareholders' Equity $5,948,463 Net Interest Income and Net Yield on Interest-Earning Assets $125,018 3.32% (a) Yields on interest-earning assets have been computed on a tax equivalent basis using the 35% Federal income tax statutory rate. (b) Average balance includes loans held for sale. (c) Income on nonaccrual loans is accounted for on the cash basis, and the loan balances are included in interest-earning assets. (d) Loan income includes net loan fees. (e) Average balances do not include reallocations from noninterest-bearing demand deposits and interest-bearing demand deposits into savings deposits which were made for regulatory purposes. FIRST COMMONWEALTH FINANCIAL CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (Dollar Amounts in Thousands) Year To Date Average Balance Sheets and Net Interest Analysis At September 30, 2005 Average Income/ Yield or Balance Expense Rate (a) Assets Interest-earning assets: Time deposits with banks $804 $22 3.67% Tax free investment securities 277,829 9,426 6.98% Taxable investment securities 1,875,527 58,625 4.18% Federal funds sold 5,964 136 3.05% Loans, net of unearned income(b)(c)(d) 3,590,481 164,216 6.31% Total interest-earning assets 5,750,605 232,425 5.64% Noninterest-earning assets: Cash 80,807 Allowance for credit losses (41,826) Other assets 428,829 Total noninterest-earning assets 467,810 Total Assets $6,218,415 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits(e) $564,832 $3,554 0.84% Savings deposits(e) 1,312,897 13,703 1.40% Time deposits 1,615,324 39,209 3.25% Short-term borrowings 834,712 17,862 2.86% Long-term debt 843,265 26,491 4.20% Total interest-bearing liabilities 5,171,030 100,819 2.61% Noninterest-bearing liabilities and capital: Noninterest-bearing demand deposits(e) 488,113 Other liabilities 25,406 Shareholders' equity 533,866 Total noninterest-bearing funding sources 1,047,385 Total Liabilities and Shareholders' Equity $6,218,415 Net Interest Income and Net Yield on Interest-Earning Assets $131,606 3.30% (a) Yields on interest-earning assets have been computed on a tax equivalent basis using the 35% Federal income tax statutory rate. (b) Average balance includes loans held for sale. (c) Income on nonaccrual loans is accounted for on the cash basis, and the loan balances are included in interest-earning assets. (d) Loan income includes net loan fees. (e) Average balances do not include reallocations from noninterest-bearing demand deposits and interest-bearing demand deposits into savings deposits which were made for regulatory purposes. FIRST COMMONWEALTH FINANCIAL CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (Dollar Amounts in Thousands) Asset Quality Data At September 30, 2006 2005 Loans on nonaccrual basis $14,707 $11,039 Past due more than 90 days 14,296 14,608 Renegotiated loans 163 176 Total nonperforming loans $29,166 $25,823 Loans outstanding at end of period(a) $3,818,776 $3,613,137 Average loans outstanding (year-to-date)(a) $3,677,352 $3,590,481 Allowance for credit losses $42,085 $41,537 Nonperforming loans as a percent of total loans 0.76% 0.71% Net charge-offs (year-to-date) $7,630 $7,120 Net charge-offs as a percent of average loans (annualized) 0.28% 0.27% Allowance for credit losses as a percent of average loans outstanding 1.14% 1.16% Allowance for credit losses as a percent of nonperforming loans 144.29% 160.85% Other real estate owned $1,911 $1,520 (a) Includes loans held for sale. Profitability Ratios For the Quarter For the Nine Ended Months Ended September 30, September 30, 2006 2005 2006 2005 Return on average assets 1.02% 0.83% 0.91% 0.99% Return on average equity 11.29% 9.62% 10.23% 11.53% Efficiency ratio (FTE)(b) 57.27% 62.35% 60.27% 58.64% Fully tax equivalent adjustment $3,724 $3,634 $10,902 $10,305 (b) Efficiency ratio is "total non-interest expense" as a percentage of total revenue. Total revenue consists of "net interest income, on a fully tax-equivalent basis," plus "total non-interest income."