First Commonwealth Announces Fourth Quarter and Full Year 2020 Earnings; Declares Quarterly Dividend and Announces Share Repurchase Program

Rhea-AI Summary

First Commonwealth Financial Corporation (NYSE: FCF) reported a net income of $25.7 million for Q4 2020, yielding $0.27 diluted earnings per share, unchanged from Q4 2019 but up from $0.20 in Q3 2020. Full-year net income fell to $73.4 million from $105.3 million in 2019. Core pre-tax pre-provision net revenue decreased to $40.4 million, down $0.8 million from Q3. The company declared a quarterly dividend of $0.11 per share, with a yield of 3.5%. Despite challenges, FCF maintained strong capital ratios and a new $25 million share repurchase program.

Positive

• Core net income of $78.9 million for 2020, only $4.7 million below last year's total.
• Total portfolio loans grew 9.2% year-over-year, increasing by $572 million.
• Capital ratios exceed Basel III requirements, with a Tier 1 Capital ratio of 11.7%.

Negative

• Full-year net income decreased by $31.9 million compared to 2019.
• Net interest margin declined 43 basis points to 3.32% year-over-year.
• Nonperforming loans increased by 4.3 million from the previous quarter, reaching $54.1 million.

INDIANA, Pa., Jan. 26, 2021 (GLOBE NEWSWIRE) -- First Commonwealth Financial Corporation (NYSE: FCF) today announced financial results for the fourth quarter and full year 2020.

Financial Summary
(dollars in thousands,	For the Three Months Ended												For the Years Ended
except per share data)	December 31,				September 30,				December 31,				December 31,				December 31,
	2020				2020				2019				2020				2019
Reported Results
Net income	$	25,683			$	19,186			$	26,820			$	73,447			$	105,333
Diluted earnings per share	$	0.27			$	0.20			$	0.27			$	0.75			$	1.07
Return on average assets		1.12	%			0.81	%			1.30	%			0.82	%			1.31	%
Return on average equity		9.48	%			7.01	%			10.13	%			6.82	%			10.32	%
Operating Results (non-GAAP)(1)
Core net income	$	26,120			$	23,905			$	26,634			$	78,951			$	108,126
Core diluted earnings per share	$	0.27			$	0.24			$	0.27			$	0.81			$	1.10
Core pre-tax pre-provision net revenue	$	40,448			$	41,237			$	38,395			$	155,351			$	150,666
Provision expense	$	7,680			$	11,212			$	4,895			$	56,718			$	14,533
Net charge-offs	$	4,825			$	4,346			$	3,293			$	17,193			$	10,660
Reserve build/(release)(2)	$	13,002			$	6,886			$	1,602			$	49,672			$	3,873
Core return on average assets (ROAA)		1.14	%			1.01	%			1.29	%			0.88	%			1.35	%
Core pre-tax pre-provision ROAA		1.76	%			1.75	%			1.86	%			1.73	%			1.88	%
Return on average tangible common equity		13.80	%			10.29	%			14.99	%			10.06	%			14.92	%
Core return on average tangible common equity		14.03	%			12.73	%			14.89	%			10.78	%			15.30	%
Core efficiency ratio		56.00	%			54.31	%			57.23	%			56.28	%			56.97	%
Net interest margin (FTE)		3.26	%			3.11	%			3.73	%			3.32	%			3.75	%

(1)   Core operating results are a non-GAAP measure used by management to measure performance in operating the business that management believes enhances investors' ability to better understand the underlying business performance and trends related to core business activities. A full reconciliation of non-GAAP financial measures can be found at the end of the financial statements which accompany this release.
(2)   Reserve build/(release) represents the net change in the Company’s allowance for credit losses (ACL) from the prior period.

Fourth Quarter 2020 Highlights

Financial results

• Net income of $25.7 million and diluted earnings per share of $0.27, an increase of $0.07 per share from the previous quarter
  °  Core net income⁽¹⁾ of $26.1 million and diluted earnings per share of $0.27, an increase of $0.03 from the previous quarter
• Core pre-tax pre-provision net revenue (PPNR)⁽¹⁾ of $40.4 million, a decrease of $0.8 million from the previous quarter and an increase of $2.1 million from the fourth quarter of 2019
  °  Core PPNR ROAA of 1.76% increased by one basis point from the previous quarter
• Net interest income of $67.8 million increased $1.1 million from the previous quarter
• Noninterest income of $26.6 million (excluding net security gains) decreased $0.2 million from the previous quarter
• Noninterest expense of $54.6 million decreased $3.6 million from the previous quarter due to $5.8 million in charges related to the Company’s previously disclosed voluntary early retirement program and the consolidation of 20% of the Company’s branch facilities during the previous quarter
• Total portfolio loans (excluding Paycheck Protection Program (PPP) loans) decreased $93.9 million from the previous quarter due to lower commercial loan demand
• Average deposits decreased $270.4 million from the previous quarter due to intentional strategies intended to manage excess liquidity
  

Asset quality

• The provision for credit losses, which was calculated under the Current Expected Credit Loss (CECL) accounting standard, was $7.7 million, a decrease of $3.5 million from the previous quarter, and included $3.2 million related to unfunded commitments.   The Company elected to defer its adoption of CECL in accordance with relief provided under the U.S. Coronavirus Aid, Relief, and Economic Security (“CARES”) Act until December 31, 2020, effective January 1, 2020.
• Reserve build⁽²⁾ totaled $49.7 million or 0.79% of total portfolio loans (excluding PPP) on a year-to-date basis, bringing reserves to total loans (excluding PPP) to 1.61%
• Nonaccrual loans of $45.6 million increased $2.9 million from the previous quarter
• Net charge-offs on loans totaled $4.8 million, an increase of $0.5 million from the previous quarter
  

Strong liquidity and capital positions

• Total available liquidity of $3.9 billion
• Bank-level Tier 1 Capital ratio of 11.7%, which represents $248.3 million in excess capital above the regulatory “well capitalized” requirement of 8.0%
• The Company completed the remaining $15.6 million of its previously authorized share repurchase program on October 9, 2020, repurchasing 2.0 million shares at a weighted average price of $7.84
  

Full Year 2020 Highlights

Franchise Growth

• Total portfolio loans grew $572.0 million, or 9.2% compared to the prior year and $93.2 million, or 1.5% (excluding PPP loans)
• Average deposits grew $1.1 billion, or 17.1% compared to the prior year, including $551.9 million, or 35.6%, in average noninterest-bearing deposits
• Tangible book value per share grew 4.4% year-over-year
  

Earnings

• For the year ended December 31, 2020, net income was $73.4 million (or $0.75 diluted earnings per share)
  °  Core net income⁽¹⁾ was $79.0 million, or $0.81 diluted earnings per share, compared to $108.1 million, or $1.10 diluted earnings per share in the prior year
• Core pre-tax pre-provision income⁽¹⁾ grew $4.7 million, or 3.1% from the prior year
• Operating leverage was positive for the full year
  °  Total core revenue⁽¹⁾ grew $9.3 million, or 2.6% from the prior year
  °  Total core noninterest expense⁽¹⁾ increased $2.8 million, or 1.4%, from the prior year

Profitability

• The core efficiency ratio⁽¹⁾ improved 69 basis points to 56.28% compared to the prior year
• The return on average assets (ROA) for the year ended December 31, 2020 was 0.82%
  °  Core ROA⁽¹⁾ for the year ended December 31, 2020 was 0.88% as compared to 1.35% in the prior year
  °  Core pre-tax pre-provision ROA⁽¹⁾ for the year ended December 31, 2020 was 1.73% as compared to 1.88% in the prior year
• The net interest margin decreased 43 basis points to 3.32% compared to the prior year
  

“Despite the many challenges we faced in 2020, I am proud of the progress we made as a company and more importantly our ability to deliver for our customers and communities.  Our proactive approach through Project Thrive to control expenses, grow our business, mitigate net interest margin compression and protect capital resulted in positive operating leverage, along with growth in loans, deposits and fee income – all while building reserves and maintaining our strong capital position throughout the year,” stated T. Michael Price, President and Chief Executive Officer. “Our core pre-tax pre-provision income in 2020 exceeded the previous year by $4.7 million, producing a pre-tax pre-provision ROA of 1.73%.  And our investments in revenue-producing lines of business such as mortgage and indirect auto resulted in a record level of production in 2020, which helped offset a challenging year for commercial businesses.”  Price continued, “We continue to work closely with our borrowers most impacted by the pandemic and remain confident that our disciplined approach to credit over the years combined with our strong capital position will ultimately serve our shareholders well as we emerge on the other side of the pandemic.”

Earnings

Net income of $25.7 million resulted in diluted earnings per share of $0.27, an increase of $0.07 per share from the previous quarter and unchanged from the fourth quarter of 2019.

Net income for the year ended December 31, 2020 was $73.4 million, as compared to $105.3 million for the same period in 2019.

Net Interest Income and Net Interest Margin

Net interest income (FTE) increased $1.1 million from the previous quarter due to the accelerated amortization of $1.7 million of PPP loan fees due to PPP loan forgiveness, partially offset by lower commercial loan demand.  

The net interest margin for the fourth quarter of 2020 was 3.26%, an increase of 15 basis points from the previous quarter and a decrease of 47 basis points from the fourth quarter of 2019.   The increase from the previous quarter was due to aforementioned PPP loan fees (which had a nine basis point impact to the margin) and a seven basis point decrease in the cost of deposits.

Adjusting for the effects of PPP loans and excess liquidity, the core net interest margin⁽¹⁾ was 3.29%, an increase of one basis point from the previous quarter. Loan yields (excluding PPP) decreased 7 basis points from the previous quarter due to the runoff of higher yielding loans and lower commercial originations.   Average loans decreased $39.9 million, or 2.3% (annualized) from the previous quarter, including $24.2 million of PPP loan forgiveness.

The total cost of interest-bearing demand and savings deposits decreased six basis points from the previous quarter.   Average time deposits decreased $86.9 million from the previous quarter due to the intentional runoff of higher cost funding sources.

For the year ended December 31, 2020, net interest income (FTE) decreased $1.9 million from the prior year due to a 43 basis point decrease in the net interest margin, partially offset by $878.9 million increase in average interest earning assets.

The net interest margin for the year ended December 31, 2020 was 3.32%, a decrease of 43 basis points from the previous year.   The decrease from the previous year was due to a 79 basis point decrease in the yield on interest-earning assets, which was partially offset by a 45 basis point decrease in the cost of interest-bearing liabilities.   The yield on total loans (excluding PPP) decreased 74 basis points compared to the prior year due primarily to the repricing of variable and adjustable interest rate loans following the Federal Reserve’s decision to cut interest rates 150 basis points in March 2020.

For the year ended December 31, 2020, total average loans grew $749.9 million, or 12.5%, including $382.6 million of average PPP loans.   For the year ended December 31, 2020, total average deposits grew $1.1 billion, or 17.1% compared to the prior year, including $551.9 million, or 35.6%, in average noninterest-bearing deposits.

Asset Quality

The Company adopted CECL on December 31, 2020, effective January 1, 2020, resulting in a transition adjustment to retained earnings of $13.4 million.   Provision expense in the fourth quarter of 2020 totaled $7.7 million, a decrease of $3.5 million from the previous quarter.   The provision expense in the fourth quarter included a $3.2 million reserve established for the life-of-loan loss rates for unfunded commitments.

At December 31, 2020, nonperforming loans totaled $54.1 million, an increase of $4.3 million from the previous quarter.   The increase in nonperforming loans was due to the deterioration of a $7.0 million hospitality relationship.

Nonperforming loans as a percentage of total loans (excluding PPP) were 0.86%, 0.78% and 0.52% for the periods ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively.

At December 31, 2020, criticized loans totaled $302.8 million, an increase of $113.9 million from the previous quarter and an increase of $202.2 million from December 31, 2019.   The increase in criticized loans has been primarily driven by weakened borrower cash flow caused by the COVID-19 pandemic.

During the fourth quarter of 2020, net charge-offs were $4.8 million, compared to $4.3 million in the prior quarter and $3.3 million in the fourth quarter of 2019.   Net charge-offs were 0.30%, 0.27% and 0.21% of average loans (excluding PPP, annualized) for the periods ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively.

Noninterest Income and Noninterest Expense

Noninterest income (excluding net security gains) totaled $26.6 million for the fourth quarter of 2020 as compared to $26.8 million for the prior quarter and $22.5 million for the fourth quarter of 2019.   The $0.2 million decrease from the prior quarter was primarily due to a $0.9 million decrease in gain on sale of mortgage loans, which was partially offset by a $0.7 million increase in swap fee income.

For the year ended December 31, 2020, noninterest income (excluding security gains) totaled $94.4 million, an increase of $8.9 million from the prior year.   The increase from the prior year was due to an $11.0 million increase in gain on sale of mortgage loans and a $2.3 million increase in card related interchange income, partially offset by a $2.5 million decrease in service charges on deposit accounts and a $2.3 million decrease in derivative mark-to-market.

There were no material security gains during 2020 or 2019.

Noninterest expense totaled $54.6 million for the fourth quarter of 2020, as compared to $58.2 million for the third quarter of 2020 and $53.1 million for the fourth quarter of 2019.  

Core noninterest expense⁽¹⁾ totaled $53.1 million for the fourth quarter of 2020, as compared to $50.9 million for the third quarter of 2020 and $52.6 million for the fourth quarter of 2019.   The $2.2 million increase from the previous quarter was primarily the result of a $2.6 million increase in salaries and benefits due to $0.7 million decrease in deferred FAS-91 fees, $0.7 million increase in incentives, $0.6 million increase in hospitalization and $0.4 million true-up of the split-dollar BOLI expense.

For the year ended December 31, 2020, noninterest expense totaled $215.8 million and core noninterest expense⁽¹⁾ totaled $206.4 million, as compared to noninterest expense of $210.0 million and core noninterest expense⁽¹⁾ of $203.6 million in the prior year.   The $2.8 million increase in core noninterest expense was primarily driven by a $6.7 million increase in salaries and benefits due to a $3.5 million increase in incentives and a $2.7 million increase in hospitalization as well as a full year impact of the Company’s acquisition of 14 former Santander branches in September 2019.   This was partially offset by a $1.3 million decrease in occupancy expense and a $1.0 million decrease in loss on sale or writedown of other assets.

Full time equivalent staff was 1,398 at December 31, 2020, as compared to 1,399 at September 30, 2020 and 1,484 at December 31, 2019.   The decrease from the prior year is the result of an ongoing company-wide hiring freeze implemented at the end of the first quarter of 2020.

Dividends and Capital

First Commonwealth Financial Corporation declared a common stock quarterly dividend of $0.11 per share, which is payable on February 19, 2021 to shareholders of record as of February 5, 2021. This dividend represents a 3.5% projected annual yield utilizing the January 25, 2021 closing market price of $12.59.

In addition, the Board of Directors has authorized a new $25.0 million share repurchase program of the company’s common stock.   Under the new program, management is authorized to repurchase shares through Rule 10b5-1 plans, open market purchases, privately negotiated transactions, block purchases or otherwise in a manner that is intended to comply with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934. First Commonwealth may suspend or discontinue the program at any time.

First Commonwealth’s capital ratios for Total, Tier I, Leverage and Common Equity Tier I at December 31, 2020 were 14.9%, 12.2%, 9.4%, and 11.2%, respectively. First Commonwealth’s current capital levels exceed the fully phased-in Basel III capital requirements issued by U.S. bank regulators.

Conference Call

First Commonwealth will host a quarterly conference call to discuss its financial results for the fourth quarter 2020 on Wednesday, January 27, 2021 at 2:00 PM (ET).   The call can be accessed by dialing (toll free) 1-844-792-3645 or through the Company’s web page, http://www.fcbanking.com/InvestorRelations.   A replay of the call will be available approximately one hour following the conclusion of the conference by dialing 1-877-344-7529 and entering the access code #10150975.   A link to the webcast replay will also be accessible on the Company’s web page for 30 days.

About First Commonwealth Financial Corporation

First Commonwealth Financial Corporation (NYSE: FCF), headquartered in Indiana, Pennsylvania, is a financial services company with 119 community banking offices in 26 counties throughout western and central Pennsylvania and throughout Ohio, as well as business banking operations in Pittsburgh, Pennsylvania, and Canton, Cleveland, Columbus and Cincinnati, Ohio. The Company also operates mortgage offices in Wexford, Pennsylvania, as well as Hudson, and Lewis Center, Ohio.   First Commonwealth provides a full range of commercial banking, consumer banking, mortgage, wealth management and insurance products and services through its subsidiaries First Commonwealth Bank and First Commonwealth Insurance Agency.   For more information about First Commonwealth or to open an account today, please visit www.fcbanking.com.

Forward-Looking Statements

Certain statements contained in this release that are not historical facts may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in our future filings with the Securities and Exchange Commission, in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact and constitute “forward-looking statements” as well. These statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of words such as “may,” “will,” “should,” “could,” “would,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “estimate” or words of similar meaning. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including uncertainties regarding the impact of the COVID-19 pandemic, and could be affected by many factors, including, but not limited to: (1) the length and extent of the economic contraction as a result of the COVID-19 pandemic and the impact of such contraction on First Commonwealth and its customers; (2) volatility and disruption in national and international financial markets; (3) the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board; (4) inflation, interest rate, commodity price, securities market and monetary fluctuations; (5) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which First Commonwealth or its customers must comply; (6) the soundness of other financial institutions; (7) political instability; (8) impairment of First Commonwealth’s goodwill or other intangible assets; (9) acts of God or of war or terrorism; (10) the timely development and acceptance of new products and services and perceived overall value of these products and services by users; (11) changes in consumer spending, borrowings and savings habits; (12) changes in the financial performance and/or condition of First Commonwealth’s borrowers; (13) technological changes; (14) acquisitions and integration of acquired businesses; (15) First Commonwealth’s ability to attract and retain qualified employees; (16) changes in the competitive environment in First Commonwealth’s markets and among banking organizations and other financial service providers; (17) the ability to increase market share and control expenses; (18) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (19) the reliability of First Commonwealth’s vendors, internal control systems or information systems; (20) the costs and effects of legal and regulatory developments, the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals; and (21) other risks and uncertainties described in this report and in the other reports that we file with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K.   Further, statements about the potential effects of the COVID-19 pandemic on our business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, clients, third parties and us.  

In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements in this release. We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Media Relations:
Jonathan E. Longwill
Vice President / Communications and Media Relations
Phone: 724-463-6806
E-mail: JLongwill@fcbanking.com

Investor Relations:
Ryan M. Thomas
Vice President / Finance and Investor Relations
Phone: 724-463-1690
E-mail: RThomas1@fcbanking.com

FIRST COMMONWEALTH FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL DATA
Unaudited
(dollars in thousands, except per share data)
	For the Three Months Ended												For the Years Ended
	December 31,				September 30,				December 31,				December 31,				December 31,
	2020				2020				2019				2020				2019
SUMMARY RESULTS OF OPERATIONS
Net interest income (FTE) (1)	$	67,825			$	66,742			$	69,212			$	269,733			$	271,610
Provision for credit losses	7,680				11,212				4,895				56,718				14,533
Noninterest income	26,622				26,769				22,528				94,476				85,485
Noninterest expense	54,552				58,247				53,109				215,826				209,965
Net income	25,683				19,186				26,820				73,447				105,333
Core net income (5)	26,120				23,905				26,634				78,951				108,126
Earnings per common share (diluted)	$	0.27			$	0.20			$	0.27			$	0.75			$	1.07
Core earnings per common share (diluted) (6)	$	0.27			$	0.24			$	0.27			$	0.81			$	1.10
KEY FINANCIAL RATIOS
Return on average assets	1.12		%		0.81		%		1.30		%		0.82		%		1.31		%
Core return on average assets (7)	1.14		%		1.01		%		1.29		%		0.88		%		1.35

FAQ

What were First Commonwealth Financial Corporation's earnings for Q4 2020?

First Commonwealth reported a net income of $25.7 million for Q4 2020.

How did First Commonwealth's diluted earnings per share change in Q4 2020?

The diluted earnings per share for Q4 2020 remained unchanged at $0.27.

What is First Commonwealth's Tier 1 Capital ratio as of December 31, 2020?

The Tier 1 Capital ratio was 11.7%.

How has First Commonwealth's net income changed over the full year 2020?

Net income for the full year 2020 was $73.4 million, down from $105.3 million in 2019.

Did First Commonwealth declare any dividends in 2021?

Yes, First Commonwealth declared a quarterly dividend of $0.11 per share.