INDIANA, Pa., April 27, 2021 (GLOBE NEWSWIRE) — First Commonwealth Financial Corporation (NYSE: FCF) today announced financial results for the first quarter of 2021.
Financial Summary
| (dollars in thousands, | For the Three Months Ended | ||||||||
| except per share data) | March 31, | December 31, | March 31, | ||||||
| 2021 | 2020 |
2020 |
|||||||
| Reported Results | |||||||||
| Net income | $39,770 | $25,683 | $4,727 | ||||||
| Diluted earnings per share | $0.41 |
$0.27 | $0.05 | ||||||
| Return on average assets | 1.77 | % | 1.12 | % | 0.23 | % | |||
| Return on average equity | 14.98 | % | 9.48 | % | 1.77 | % | |||
| Operating Results (non-GAAP)(1) | |||||||||
| Core net income | $39,855 | $26,102 | $4,730 | ||||||
| Core diluted earnings per share | $0.41 |
$0.27 | $0.05 | ||||||
| Core pre-tax pre-provision net revenue | $45,046 | $40,092 | $36,730 | ||||||
| Provision expense | ($4,390) | $7,680 | $30,967 | ||||||
| Net charge-offs | $3,270 | $4,825 | $3,529 | ||||||
| Reserve build/(release)(2) | ($4,546) | $13,002 | $27,439 | ||||||
| Core return on average assets (ROAA) | 1.77 | % | 1.14 | % | 0.23 | % | |||
| Core pre-tax pre-provision ROAA | 2.00 | % | 1.75 | % | 1.77 | % | |||
| Return on average tangible common equity | 21.58 | % | 13.80 | % | 2.92 | % | |||
| Core return on average tangible common equity | 21.63 | % | 14.02 | % | 2.92 | % | |||
| Core efficiency ratio | 53.18 | % | 56.00 | % | 58.19 | % | |||
| Net interest margin (FTE) | 3.40 | % | 3.26 | % | 3.65 | % | |||
(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.
First Quarter 2021 Highlights
Financial results
- Net income of $39.8 million and diluted earnings per share totaled $0.41, an increase of $14.1 million, or $0.14 per share from the previous quarter
- Pre-tax pre-provision net revenue (PPNR)(1) totaled $44.9 million, an increase of $5.4 million from the previous quarter and an increase of $8.2 million from the first quarter of 2020
- PPNR ROAA of 2.00% increased by 27 basis points from the previous quarter
- The Company achieved positive operating leverage during the first quarter of 2021
- Core revenue(1) grew $0.8 million, or 0.9% from the prior quarter
- Core noninterest expense(1) decreased $2.2 million, or 4.2%, from the prior quarter
- Net interest income (FTE) of $69.8 million increased $1.9 million from the previous quarter
- Noninterest income of $27.3 million (excluding net security gains) increased $0.8 million from the previous quarter
- Noninterest expense of $51.9 million decreased $2.7 million from the previous quarter
- Portfolio loans (excluding Paycheck Protection Program (PPP) loans) decreased $23.9 million from the previous quarter despite consumer loan growth, due in part to commercial loan payoffs
- Approximately $215.7 million of PPP loans were forgiven in the first quarter, offset by $215.3 million in new PPP loan production, resulting in the total PPP loan balance at March 31, 2021 of $478.5 million, which was fairly consistent with the balance at December 31, 2020 of $478.9 million.
- Average deposits increased $20.4 million, or 1.1% annualized compared to the prior quarter despite $81.1 million in intentional time deposit runoff
- End of period deposits grew by $430.6 million from the end of the fourth quarter
- Average noninterest-bearing deposits grew $100.9 million, or 17.4% annualized compared to the prior quarter
- Tangible book value per share grew 9.7% annualized compared to the prior quarter and 6.2% year-over-year
- First Commonwealth Bank has been recognized for the third consecutive year by Forbes as one of the World’s Best Banks for 2021
Profitability
- The core efficiency ratio(1) improved 282 basis points to 53.18% compared to the prior quarter
- The return on average assets (ROA) improved 65 basis points to 1.77% compared to the prior quarter
- Pre-tax pre-provision ROA(1) for the quarter ended March 31, 2021 was 2.00% as compared to 1.73% in the prior quarter and 1.77% in the prior year quarter
- The net interest margin of 3.40% increased 14 basis points compared to the prior quarter and decreased 25 basis points as compared to the prior year quarter
Strong capital and liquidity positions
- On April 26, 2021, the Board of Directors authorized a 4.5% increase in the quarterly cash dividend to shareholders
- Bank-level Tier 1 Capital ratio of 12.00%, which represents $271.0 million in excess capital above the regulatory “well capitalized” requirement of 8.0%
- Total available liquidity of $4.5 billion
- On January 26, 2021, the Company announced that its Board of Directors authorized a new $25.0 million share repurchase program of the Company’s common stock. A total of 28,012 shares were purchased under this program during the first quarter of 2021 for a weighted average price of $13.99 per share.
Asset quality
- The provision for credit losses was $(4.4) million, a decrease of $12.1 million from the previous quarter
- Reserve build/(release)(2) totaled $(4.5) million, bringing reserves to total loans (excluding PPP) down to 1.55% from 1.61% last quarter
- Nonaccrual loans of $43.7 million decreased $1.9 million from the previous quarter
- Net charge-offs on loans totaled $3.3 million, a decrease of $1.5 million from the previous quarter
- Net charge-offs as a percentage of average loans outstanding (annualized) was 0.20% in the first quarter of 2021, down from 0.28% last quarter
“While the reserve release is certainly a positive reflection of our asset quality trends and the improved macroeconomic environment, the trajectory of our fundamental operating performance is even more encouraging,” stated T. Michael Price, President and Chief Executive Officer. “Our consumer loans are growing, our commercial pipelines have started to build and our fee generating businesses all had another solid quarter. At the same time, the team helped 2,500 small and mid-sized businesses secure roughly $255 million in PPP funding during the quarter.” Price continued, “Last week, Forbes released their list of the World’s Best Banks for 2021. For the third year in a row, First Commonwealth is proud to be one of 75 banks from the United States receiving this distinction. This recognition gives us even more confidence that our Company is well-positioned to reward all of our stakeholders.”
Earnings
Net income for the first quarter of 2021 was $39.8 million, or $0.41 per share, compared to $25.7 million, or $0.27 per share in the fourth quarter of 2020 and $4.7 million, or $0.05 per share for the first quarter of 2020.
Net Interest Income and Net Interest Margin
Net interest income (FTE) of $69.8 million increased $1.9 million from the previous quarter and $1.6 million from the prior year quarter. The increase from the prior quarter was primarily due to a $2.4 million increase in fees and interest on PPP loans and a $189.4 million increase in average investment securities, partially offset by an $81.1 million decrease in higher cost time deposits. Interest and fee income recognized on PPP loans totaled $7.9 million in the first quarter as compared to $5.5 million in the prior quarter.
The net interest margin for the first quarter of 2021 was 3.40%, an increase of 14 basis points from the previous quarter and a decrease of 25 basis points from the first quarter of 2021. The increase from the fourth quarter of 2020 was due primarily to a 258 basis point increase in the yield on PPP loans (inclusive of loan forgiveness) and a six basis point decrease in the cost of deposits, partially offset by a 1 basis point increase in the yield on loans.
Total average deposits grew $20.4 million in the first quarter of 2021 as compared to the previous quarter. Balance sheet management strategies that reduced deposits by the end of the fourth quarter were offset by deposit growth in the first quarter of $430.6 million. Average noninterest bearing deposits grew $100.9 million and offset an $81.1 million decrease in average time deposits.
Asset Quality
The Company adopted CECL on December 31, 2020, effective January 1, 2020.
Provision expense in the first quarter of 2021 totaled $(4.4) million, a decrease of $12.1 million from the previous quarter. The provision expense in the fourth quarter 2020 included $3.2 million for unfunded commitments as a result of the adoption of CECL and use of life-of-loan loss rates.
At March 31, 2021, nonperforming loans totaled $50.4 million, a decrease of $3.7 million from the previous quarter and a decrease of $8.8 million from the previous year quarter. Nonperforming loans represented 0.80% of total loans (excluding PPP) as of March 31, 2021, down from 0.86% and 0.93% for the periods ended December 31, 2020 and March 31, 2020, respectively.
At March 31, 2021, criticized loans totaled $272.1 million, a decrease of $30.7 million from the previous quarter.
During the first quarter of 2021, net charge-offs were $3.3 million, compared to $4.8 million in the prior quarter and $3.5 million in the first quarter of 2020. Net charge-offs were 0.20%, 0.28% and 0.23% of average loans for the periods ended March 31, 2021, December 31, 2020 and March 31, 2020, respectively.
Noninterest Income and Noninterest Expense
Noninterest income totaled $27.3 million for the first quarter of 2021, as compared to $26.6 million for the fourth quarter of 2020 and $19.3 million for the first quarter of 2020 (excluding net securities gains). There were no material securities gains during the current or comparable quarters.
The $0.8 million increase from the previous quarter was primarily due to a $1.8 million increase in the derivative mark-to-market adjustment on interest rate swaps as a result of changes in fair value due to movement in bond spreads, swap rates and counterparty credit risk. This increase was partially offset by a $0.6 million decrease in fee income related to new interest rate swaps due to lower commercial demand. Income from mortgage gain on sale improved by $0.4 million over the prior quarter but was offset by a $0.9 million negative interest rate hedge adjustment.
Noninterest expense (excluding branch consolidation, early retirement and COVID-19 related expenses) totaled $51.7 million for the first quarter of 2021, as compared to $54.0 million for the fourth quarter of 2020 and $50.2 million for the first quarter of 2020. The $2.3 million decrease from the previous quarter was primarily the result of a $2.7 million decrease in salaries and benefits due to a $1.0 million seasonal decrease in hospitalization expense, a $0.7 million decrease in incentive expense and an increase of $0.5 million in deferred expense related to PPP originations. The decrease from the previous quarter was partially offset by a $1.1 million increase in occupancy expense due to seasonal snow removal expense and maintenance.
The core efficiency ratio was 53.18% during the first quarter of 2021 as compared to 56.00% in the previous quarter and 58.19% in the first quarter of 2020.
Full time equivalent staff was 1,387 at March 31, 2021, 1,389 at December 31, 2020, and 1,510 at March 31, 2020. The decrease from the prior year quarter is the result of a company-wide hiring freeze implemented at the end of the first quarter of 2020 and the consolidation of 20% of the bank’s branch facilities in the fourth quarter of 2020.
Dividends and Capital
First Commonwealth Financial Corporation declared a common stock quarterly dividend of $0.115 per share, which represents a 4.5% increase from the previous quarter. The cash dividend is payable on May 21, 2021 to shareholders of record as of May 7, 2021. This dividend represents a 3.2% projected annual yield utilizing the April 26, 2021 closing market price of $14.34.
First Commonwealth’s capital ratios for Total, Tier I, Leverage and Common Equity Tier I at March 31, 2021 were 15.3%, 12.6%, 9.7% and 11.6% respectively. First Commonwealth’s current capital levels exceed the fully phased-in Basel III capital requirements issued by U.S. bank regulators.
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.
