-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SM22U2OcoBO5BkrtewS2vlo6/8eAJHQkYMCH72FtuzdpzVX3Jsskcsi7TPAJRTaI YLUnM68wVxy2Q1/M9/GR1Q== 0000712537-96-000007.txt : 19960401 0000712537-96-000007.hdr.sgml : 19960401 ACCESSION NUMBER: 0000712537-96-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST COMMONWEALTH FINANCIAL CORP /PA/ CENTRAL INDEX KEY: 0000712537 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 241428528 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11138 FILM NUMBER: 96541545 BUSINESS ADDRESS: STREET 1: OLD COURTHOUSE SQUARE STREET 2: 22 N SIXTH ST CITY: INDIANA STATE: PA ZIP: 15701 BUSINESS PHONE: 4123497220 MAIL ADDRESS: STREET 1: 22 NORTH SIXTH STREET STREET 2: P.O. BOS 400 CITY: INDIANA STATE: PA ZIP: 15701 10-K 1 10K DEC 31, 1995 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C 20549 Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1995 commission file number 0-11242 FIRST COMMONWEALTH FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-1428528 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 22 NORTH SIXTH STREET INDIANA, PA 15701 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (412) 349-7220 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes XX No . Indicate the number of shares outstanding of each of the issuer's classes of common stock. TITLE OF CLASS OUTSTANDING AT March 20, 1996 Common Stock, $1 Par Value 22,266,560 Shares The aggregate market value of the voting common stock, par value $1 per share, held by non-affiliates of the registrant (Based upon the closing sale price on March 20, 1996), was approximately $420,281,320. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement related to the annual meeting of security holders to be held April 20, 1996 are incorporated by reference into Part III. FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES First Commonwealth Financial Corporation FORM 10-K INDEX PART I PAGE ITEM 1. Business Description of business.......................... 2 Competition...................................... 4 Supervision and regulation....................... 4 ITEM 2. Properties....................................... 7 ITEM 3. Legal Proceedings................................ 7 ITEM 4. Submission of Matters to a Vote of Security Holders......................................... 7 PART II ITEM 5. Market for Registrant's Common Stock and Related Security Holder Matters......................... 8 ITEM 6. Selected Financial Data.......................... 9 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.............. 10 ITEM 8. Financial Statements and Supplementary Data...... 26 ITEM 9. Disagreements on Accounting and Financial Disclosures..................................... 53 PART III ITEM 10. Directors and Executive Officers of the Registrant..................................... 53 ITEM 11. Management Renumeration and Transactions........ 54 ITEM 12. Security Ownership of Certain Beneficial Owners and Management................................. 54 ITEM 13. Certain Relationships and Related Transactions.. 54 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 55 Signatures..................................... 57 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 1. Business Description of Business First Commonwealth Financial Corporation (the "Corporation") was incorporated as a Pennsylvania business corporation on November 15, 1982 and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. After its incorporation it became affiliated as a result of statutory mergers with the following: On April 29, 1983 it affiliated with National Bank of the Commonwealth ("NBOC"), a national bank in Indiana, Indiana County; on March 19, 1984 with Deposit Bank ("Deposit"), a Pennsylvania-chartered bank and trust company in DuBois, Clearfield County; on August 16, 1985 with Dale, a national bank in Dale (Johnstown), Cambria County; and on December 14, 1985 with the First National Bank of Leechburg ("Leechburg"), a national bank in Leechburg, Armstrong County; December 31, 1986 with CNB CORP, Inc. ("CNB"), a one-bank holding company and its wholly-owned subsidiary, Citizens National Bank in Windber ("Citizens"). CNB was then combined with the Corporation. Immediately thereafter, and on the same day, Citizens was combined with Dale and the resulting entity was named Cenwest National Bank ("Cenwest"). On May 31, 1990 the Corporation affiliated with Peoples Bank and Trust Company ("PBT"), a Pennsylvania-chartered bank and trust company in Jennerstown, Somerset County. On April 30, 1992 the Corporation affiliated with Central Bank ("Central"), a Pennsylvania-chartered bank in Hollidaysburg, Blair County. On December 31, 1993 the Corporation affiliated with Peoples Bank of Western Pennsylvania ("PBWPA"), a Pennsylvania-chartered commercial bank in New Castle, Lawrence County. On September 27, 1994 the Corporation affiliated with United National Bancorporation, ("United"), a bank holding company, and its wholly-owned subsidiaries. Unitas National Bank ("Unitas Bank") a national bank headquartered in Chambersburg, Franklin County, Pennsylvania and Unitas Mortgage Corporation ("Unitas Mortgage") were the only active subsidiaries of United. Unitas Mortgage engaged in the origination of mortgages for sale in the secondary mortgage market and is headquartered in Carlisle, Pennsylvania. Upon merger, United was combined with the Corporation and its subsidiaries became subsidiaries of the Corporation. On September 29, 1994 the Corporation affiliated with Reliable Financial Corporation ("RFC"), a savings and loan holding company and its wholly-owned subsidiary, Reliable Savings Bank, PaSA ("RSB"), a state-chartered, federally insured savings bank headquartered in Bridgeville, Pennsylvania. As a result of the merger, RFC became a wholly-owned subsidiary of the Corporation, with its principal places of business in Allegheny and Washington Counties in western Pennsylvania. Effective at the close of business November 13, 1995 seven wholly-owned subsidiary banks of the Corporation including NBOC, Cenwest, Leechburg, PBT, Central, PBWPA and Unitas Bank merged into Deposit, also a wholly-owned subsidiary, under the Deposit charter. The name of the surviving bank was immediately changed to First Commonwealth Bank ("FCB"); and the principal place of business was moved to Indiana, Indiana County, Pennsylvania. The subsidiary banks continue to operate in their local communities in central and western Pennsylvania, as divisions of First Commonwealth Bank, doing business under the following names: NBOC Bank, Deposit Bank, Cenwest Bank, First Bank of Leechburg, Peoples Bank, Central Bank, Peoples Bank of Western Pennsylvania and Unitas Bank. Commonwealth Systems Corporation ("CSC") was incorporated as a Pennsylvania business corporation in 1984 by the Corporation to function as its data processing subsidiary and it has its principal place of business in Indiana, Pennsylvania. Before August 1984, it had operated as the data processing department of NBOC. First Commonwealth Trust Company ("FCTC") was incorporated on January 18, 1991 as a Pennsylvania chartered trust company to render general trust services. The trust departments of Subsidiary Banks were combined to form FCTC, and the corporate headquarters are located in Indiana, Pennsylvania. The Corporation and its subsidiaries employed approximately 1,060 persons (full-time equivalents) at December 31, 1995. 2 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 1. Business (Continued) Through FCB, the Corporation traces its banking origins to 1866. FCB and RSB conduct their business through 81 community banking offices in 52 communities in the counties of Adams (1 office), Allegheny (2), Armstrong (3), Beaver (1), Bedford (4), Blair (7), Cambria (11), Centre (4), Clearfield (6), Elk (3), Franklin (2), Huntingdon (7), Indiana (8), Jefferson (4), Lawrence (6), Somerset (6), Washington (1) and Westmoreland (5). FCB engages in general banking business and offers a full range of financial services. FCB offers such general retail banking services as demand, savings and time deposits; mortgage, consumer installment and commercial loans; and credit card loans through MasterCard and VISA. RSB is a full service savings association. Although approximately 80% of its loan portfolio consists of loans secured by mortgages on 1-4 family residences, it offers various loan services, including secured and unsecured, commercial and consumer loans, construction and commercial mortgages and lease financing. RSB also offers a full range of deposit products. FCB and RSB (Banks) operate a network of 59 automated teller machines ("ATMs") which permit their customers to conduct routine banking transactions 24 hours a day. Of the ATMS, 41 are located on the premises of their main or branch offices and 18 are in remote locations. All the ATMs are part of the MAC network which consist of over 19,000 ATMs owned by numerous banks, savings and loan associations and credit unions located throughout 16 states, of which 14 are east of Mississippi River. The Banks' MAC customers may use the HONOR Network, which has 9,800 ATM's located primarily in the southeast quadrant of the United States. The ATM's operated by the Banks are also part of the global MasterCard/Cirrus network which is comprised of more than 168,900 ATMs located in the United States, Canada and 58 other countries and territories, which services over 365 million card holders. Such networks allow the Bank's customers to withdraw cash and in certain cases conduct other banking transactions from ATMs of all participating financial institutions. In addition to funds access through the use of ATMs, the MAC debit card offered to the Banks deposit customers may be used at 150,000 point of sale terminals on the MAC system as well as being used on the global MasterCard system for the purchase of goods and services. The MAC debit card provides customers with the almost universal acceptability of a credit card combined with the convenience of direct debit to the customers checking account. CSC is the data processing subsidiary of the Corporation. It provides on- line general ledger accounting services and bookkeeping services for deposit and loan accounts to the Corporation, the Subsidiary Banks and two other bank customer located in Pennsylvania. CSC also acts as a centralized purchasing agent for the purchase of computer hardware and software products by the Corporation and subsidiaries as well as providing technical support for the installation and use of these products. It competes, principally with data processing subsidiaries of other, mostly larger, banks, on the basis of the price and quality of its services and the speed with which such services are delivered. FCTC has four branch offices in the service areas of the Banks and offers personal and corporate trust services, including administration of estates and trusts, individual and corporate investment management and custody services and employee benefit trust services. On June 1, 1989 Commonwealth Trust Credit Life Insurance Company began operations. The Corporation owns 50% of the voting common stock of the new company. The Commonwealth Trust provides reinsurance for credit life and credit and health insurance activities sold by the subsidiaries of the two unrelated holding companies under a joint venture arrangement whereby the net income derived from such reinsurance inures proportionally to the benefit of the holding company selling the underlying insurance to its banks' customers. 3 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 1. Business (Continued) The Corporation does not engage in any significant business activities other than holding the stock of its subsidiaries. The Corporation does not at present have any plans to expand or modify its business or that of its subsidiaries, other than as described herein. Nevertheless, it will be receptive to and may actively seek out mergers and acquisitions in the event opportunities which management considers advantageous to the development of the Corporation's business arise, and may otherwise expand or modify its business as management deems necessary to respond to changing market conditions or the laws and regulations affecting the business of banking. Competition The Banks, FCTC and Unitas Mortgage face intense competition, both from within and without their service areas, in all aspects of business. The Banks compete for deposits, in such forms as checking, savings and NOW (negotiable order of withdrawal) accounts, MMDA (money market deposit accounts) and certificates of deposit, and in making consumer loans and loans to smaller businesses, with numerous other commercial banks and savings banks doing business within their service areas. With respect to loans to larger businesses the Banks also complete with much larger banks located outside of their service areas. They also compete, primarily in making consumer loans and for deposits, with state and federally chartered savings and loan associations and with credit unions. In recent years they have encountered significant competition for deposits from money market funds and institutions that offer annuities located throughout the United States. Money market funds pay dividends to their shareholders (which are the equivalent are the equivalent of the interest paid by banks on deposits) and they are able to offer services and conveniences similar to those offered by the Subsidiary Banks. Annuities accumulate interest on the amounts deposited over a predetermined time period. The depositor is then entitled to withdraw his funds for a fixed period of time or until death. The effect of such competition has been to increase the costs of the rest of deposits, which provide the funds with which loans are made. In addition to savings and loan associations and credit unions, the Banks also compete for consumer loans with local offices of national finance companies and finance subsidiaries of automobile manufacturers and with national credit card companies such as MasterCard and VISA, whose cards, issued through financial institutions, are held by consumers throughout their service areas. The Banks believe that the principal means by which they compete for deposits and consumer and smaller commercial loans are the number and desirability of the locations of their offices and ATMs, the sophistication and quality of their services and the prices (primarily interest rates) of their services. Additionally, the Banks intend to remain competitive by offering financial services that target specific customer needs. Examples of such specialized products include the "Sentry CD Watch" which provides certificate of deposit rates of competitors to members of the Banks' "Senior Accent" club, available to customers age 50 or better, and introduction of the "Too Good To Be True" mortgage product, available to first time home buyers. Specific customer needs are also met through an enhanced customer delivery system that includes telephone banking, which provides convenient access to financial services and hours of operation that extend past those of the Banks' branch offices. Supervision and Regulation The Corporation is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended ("the Bank Holding Company Act") and is registered such with the Federal Reserve Board. As a registered bank holding company, it is required to file with the Federal Reserve Board an annual report and other information. The Federal Reserve Board is also empowered to make examinations and inspections of the Corporation and its subsidiaries. 4 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 1. Business (Continued) Supervision and Regulation (Continued) The Bank Holding Company Act and Regulation Y of the Federal Reserve Board require every bank holding company to obtain the prior approval of the Federal Reserve Board before it may acquire direct or indirect ownership or control of more than 5% of the outstanding voting shares or substantially all of the assets of a bank or merge or consolidate with another bank holding company. The Federal Reserve Board may not approve acquisitions by FCFC of such percentage of voting shares or substantially all the assets of any bank located in any state other than Pennsylvania unless the laws of such state specifically authorize such an acquisition. The Bank Holding Company Act generally prohibits a bank holding company from engaging in a non-banking business or acquiring direct or indirect ownership or control of more that 5% of the outstanding voting shares of any non- banking corporation subject to certain exceptions, the principal exception being where the business activity in question is determined by the Federal Reserve Board to be closely related to banking or to managing or controlling banks to be a proper incident thereto. The Bank Holding Company Act does not place territorial restrictions on the activities of such banking related subsidiaries of bank holding companies. Under the Federal Reserve Act, subsidiary banks of a bank holding company are subject to certain restrictions on extensions of credit to the bank holding company or any of its subsidiaries, investments in the stock or other securities thereof, or acceptance of such stock or securities as collateral for loans to any one borrower. A bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with the extension of credit or the furnishing of property or services. Under the Pennsylvania Banking Code, there is no limit on the number of Pennsylvania banks that may be owned or controlled by a Pennsylvania bank holding company. Upon the acquisition of RFC, the Corporation also became a savings and loan holding company subject to regulation and supervision of the Office of Thrift Supervision ("OTS") under the Savings and Loan Holding Company Act, and by the Pennsylvania Department of Banking under the Pennsylvania Savings Association Code of 1967, as amended. While the regulation and supervision of multiple regulators increase the Corporation's cost of compliance with federal and state banking laws and regulations, it is not excepted to have a significant adverse effect on its operations or financial condition. RFC is a unitary savings and loan holding company. Its only subsidiary, RSB is a Qualified Thrift Lender ("QTL") because more than 65% of its portfolio assets (as defined by law) are invested in residential mortgages, and certain mortgage backed and housing related assets such as Federal Home Loan Bank stock and stock issued by the Federal National Mortgage Association. As a unitary savings and loan holding company, RFC and any subsidiary it might create are not restricted to the statutorily prescribed list of permissible activities found in the Savings and Loan Holding Company Act and in certain regulations of the predecessor of the OTS, and the Savings and Loan Holding Company Act imposes no limits on their direct or indirect non- savings institutions operations. If RFC were to acquire a second savings association and operate it as a separate subsidiary, it would become a multiple savings and loan holding company and its activities would be confined to a statutorily prescribed list of activities regarded as closely related. If RSB were to lose its QTL status, thereafter RFC would be regulated and supervised by the OTS as a bank holding company, as described above for the Corporation, with each savings institution subsidiary being treated as a bank for this purpose. 5 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 1. Business (Continued) First Commonwealth Bank and Reliable Savings Bank FCB is a Pennsylvania-chartered bank and is not a member of the Federal Reserve System. FCB is subject to the supervision of and regularly examined by the Pennsylvania Department of Banking and the Federal Deposit Insurance Corporation ("FDIC"), and subject to certain regulations of the Federal Reserve Board. RSB is a Pennsylvania-chartered savings association and is subject to the supervision of and is regularly examined by the Pennsylvania Department of Banking and the OTS. FCB is a member of the FDIC while RSB is a member of the Savings and Loan Insurance Fund of the FDIC. As such, both FCB and RSB are subject to examination by the FDIC. The areas of operation subject to regulation by Federal and Pennsylvania laws, regulations and regulatory agencies include reserves against deposits, maximum interest rates for specific classes of loans, truth-in-lending disclosures, permissible types of loans and investments, trust operations, mergers and acquisitions, issuance of securities, payment of dividends. Community Reinvestment Act evaluations, mandatory external audits, establishment of branches and other aspects of operations. Under the Pennsylvania Banking Code, a state or national bank or a savings association located in Pennsylvania may establish branches anywhere in the state. Reciprocal Regional Interstate Banking As already noted, a bank holding company located in one state cannot acquire a bank or a bank holding company located in another state unless the law of such other state specifically permits such acquisition. On June 25, 1986, Pennsylvania passed a law (Act No. 1986-69) which provides that a bank holding company located in any state or the District of Columbia can acquire a Pennsylvania bank or bank holding company if the jurisdiction where the acquiring bank holding company is located has passed an enabling law that permits a Pennsylvania bank holding company to acquire a bank or a bank holding company in such jurisdiction. As of December 31, 1995 enabling laws have been passed so that the required reciprocity presently exists with approximately 34 states, of which the following 18 are east of the Mississippi River: Connecticut, Delaware, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Rhode Island, Tennessee, Vermont and West Virginia. A similar law is applicable to savings associations and savings and loan holding companies. It is difficult to determine the precise effects that reciprocal regional interstate banking will have on the Corporation, but the law has increased, and as reciprocity becomes effective will increase further, the number of potential buyers for Pennsylvania banks and bank holding companies. The law also will permit Pennsylvania bank holding companies and Pennsylvania savings and loan holding companies that desire to expand outside Pennsylvania to acquire banks, savings institutions and bank holding companies located in jurisdictions with which Pennsylvania has reciprocity. Effects of Governmental Policies The business and earnings of the Corporation are affected not only by general economic conditions, but also by the monetary and fiscal policies of the United States Government and its agencies, including the Federal Reserve Board. An important function of the Federal Reserve Board is to regulate the national supply of bank credit. Among the instruments of monetary 6 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 1. Business (Continued) Effects of Governmental Policies (Continued) policy used by the Federal Reserve Board to implement these objectives are open market operations in United States government securities, changes in the discount rate on borrowings by member banks and savings institutions from the Federal Reserve System and changes in reserve requirements against bank and savings institution deposits. These instruments, together with fiscal and economic policies of various governmental entities, influence overall growth of bank loans, investments and deposits and may also affect interest rates charged on loans, received on investments or paid for deposits. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of bank holding companies and their subsidiary banks in the past and are expected to continue to do so in the future. In view of changing conditions in the national and Pennsylvania economies and in the money markets, as well as the effect of actions by monetary and fiscal authorities, including the Federal Reserve Board, no prediction can be made as to possible future changes in interest rates, deposit levels and loan demand or the effect of such changes on the business and earnings the Corporation or its subsidiaries. ITEM 2. PROPERTIES The Corporation's principal office is located in the old Indiana county Courthouse complex. This certified Pennsylvania and national historic landmark was built in 1870 and restored by NBOC in the early 1970s. The Corporation, NBOC and CSC occupy this grand structure, which provides 32,000 square feet of floor space, under a 25-year restoration lease agreement with Indiana County, which NBOC entered into in 1973 and which contains a renewal option. Under the lease, NBOC is obligated to pay all taxes, maintenance and insurance on the building and to restore it in conformity with historic guidelines. In order to support future expansion needs and centralization of various functional areas such as loan processing, marketing, and accounting, the Corporation also owns two additional structures, free of all liens and encumbrances. These facilities currently provide office space for the Corporation, CSC, FCTC and FCB. The Banks have 81 banking facilities of which 27 are leased and 54 are owned in fee, free of all liens and encumbrances. All of the facilities utilized by the Corporation and its subsidiaries are used primarily for banking activities. Management believes all such facilities to be in good repair and well suited to their uses. Management presently expects that such facilities will be adequate to meet the anticipated needs of the Corporation and its subsidiaries for the immediate future. ITEM 3. LEGAL PROCEEDINGS The information appearing in NOTE 17 of the Notes to the Consolidated Financial Statements included in Item 8 of this filing is incorporated by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable 7 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES Part II ITEM 5. Market for Registrant's Common Stock and Related Security Holder Matters First Commonwealth Financial Corporation (the "Corporation") is listed on the New York Stock Exchange under the symbol "FCF". The approximate number of holders of record of the Corporation's common stock is 8,300. The table below sets forth the high and low sales prices per share and cash dividends declared per share for common stock of the Corporation. Cash Dividends Period High Sale Low Sale Per Share 1995 First Quarter $14.750 $13.250 $0.160 Second Quarter $15.875 $13.875 $0.160 Third Quarter $16.375 $14.500 $0.160 Fourth Quarter $17.875 $15.750 $0.180 Cash Dividends Period High Sale Low Sale Per Share 1994 First Quarter $20.250 $16.750 $0.140 Second Quarter $18.500 $15.500 $0.140 Third Quarter $19.000 $15.000 $0.140 Fourth Quarter $15.375 $13.500 $0.160 8 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 6. Selected Financial Data (Dollar Amounts in Thousands, except per share data) The following selected financial data is not covered by the auditor's report and should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, which follows, and with the consolidated financial statements and related notes. All amounts have been restated to reflect the poolings of interests.
Years Ended December 31, 1995 1994 1993 1992 1991 Interest income....................... $175,701 $159,644 $154,990 $155,606 $150,627 Interest expense...................... 82,418 69,102 67,164 73,295 82,205 Net interest income................. 93,283 90,542 87,826 82,311 68,422 Provision for possible loan losses.... 4,125 2,896 2,920 3,744 5,451 Net interest income after provision for possible loan losses.......... 89,158 87,646 84,906 78,567 62,971 Securities gains (losses)............. (603) 5,536 3,528 955 711 Other operating income................ 11,007 10,635 10,960 9,362 7,465 Other operating expenses.............. 62,062 60,855 59,405 54,957 46,147 Income before taxes and cumulative effect of change in accounting method......................... 37,500 42,962 39,989 33,927 25,000 Applicable income taxes............... 11,974 14,226 12,444 9,393 6,305 Income before cumulative effect of change in accounting method. 25,526 28,736 27,545 24,534 18,695 Cumulative effect of change in accounting method................... -0- -0- 865 -0- -0- Net income............................ $ 5,526 $ 28,736 $ 28,410 $ 24,534 $ 18,695 Per Share Data Net income before cumulative effect of change in accounting method..... $1.16 $1.28 $1.23 $1.12 $0.89 Cumulative effect of change in accounting method.................. 0.00 0.00 0.04 0.00 0.00 Net income.......................... $1.16 $1.28 $1.27 $1.12 $0.89 Dividends declared.................. $0.66 $0.58 $0.51 $0.55 $0.38 Average shares outstanding.......... 22,005,427 22,432,062 22,416,360 21,983,845 20,899,175 At End of Period Total assets........................ $2,364,307 $2,334,921 $2,252,836 $2,077,824 $1,746,365 Investment securities............... 748,702 813,687 909,166 703,227 559,127 Loans and leases, net of unearned income............................ 1,487,542 1,377,794 1,211,109 1,165,494 1,009,595 Reserve for possible loan losses.... 18,152 17,337 16,483 15,828 10,681 Deposits............................ 1,962,760 1,881,060 1,822,085 1,788,226 1,519,044 Long-term debt...................... 5,261 7,596 7,363 8,130 6,524 Shareholders' equity................ 252,276 225,135 228,910 210,687 178,984 Key Ratios Return on average assets............ 1.10% 1.26% 1.32% 1.26% 1.12% Return on average equity............ 10.55% 12.55% 12.86% 12.30% 11.82% Net loans to deposit ratio.......... 74.86% 72.32% 65.56% 64.29% 65.78% Dividends per share as a percent of net income per share.............. 56.90% 45.31% 40.16% 49.11% 42.70% Average equity to average assets ratio............................. 10.39% 10.01% 10.23% 10.26% 9.52%
9 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction This discussion and the related financial data are presented to assist in the understanding and evaluation of the consolidated financial condition and the results of operations of First Commonwealth Financial Corporation (the "Corporation") including its subsidiaries for the years ended December 31, 1995, 1994 and 1993 and are intended to supplement, and should be read in conjunction with, the consolidated financial statements and related footnotes. The Corporation acquired United National Bancorporation and its subsidiaries ("United") and Reliable Financial Corporation and its subsidiary ("Reliable") effective September 27, 1994 and September 29, 1994, respectively. Effective December 31, 1993, the Corporation acquired Peoples Bank of Western Pennsylvania ("PBWPA"). The mergers were accounted for as poolings of interests and accordingly, all financial statements have been restated as though the mergers had occurred at the beginning of the earliest period presented. Results of Operations Net income in 1995 was $25.5 million, a decrease of $3.2 million from the 1994 level of $28.7 million and compared to $28.4 million reported in 1993. Earnings per share decreased $0.12 per share in 1995 to $1.16. Earnings per share before the cumulative effect of the change in accounting method increased $0.05 per share in 1994 to $1.28 from $1.23 reported in 1993. The impact of net securities transactions decreased earnings per share $0.27 in 1995 while changes in net interest income increased earnings by $0.20 per share. Merger costs in 1994 reduced earnings by $0.07 per share. Included in the salary and benefits costs in 1995 were early retirement costs and other benefit adjustments resulting in a $0.05 per share adjustment. Return on average assets was 1.10% and return on average equity was 10.55% during 1995 compared to 1.26% and 12.55%, respectively for 1994. Return on average assets was 1.32% during 1993 while return on average equity was 12.86%. The following is an analysis of the impact of changes in net income on earnings per share: 1995 1994 vs. vs. 1994 1993 Net income per share, prior year $1.28 $1.27 Increase (decrease) from changes in: Net interest income 0.20 0.12 Provision for possible loan losses (0.06) 0.00 Security transactions (0.27) 0.09 Other income 0.02 (0.02) Salaries and employee benefits (0.16) (0.03) Occupancy and equipment costs (0.02) 0.01 Merger expenses 0.07 (0.07) FDIC expense 0.08 0.00 Other expenses (0.07) 0.03 Provision for income taxes 0.09 (0.08) Subtotal 1.16 1.32 Cumulative effect of change in accounting method 0.00 (0.04) Net income per share $1.16 $1.28 10 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 $93.3 million in 1995 compared to $90.5 million in 1994 and $87.8 million in 1993. The following is an analysis of the average balance sheets and net interest income for each of the three years in the period ended December 31, 1995. 11 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis
Average Balance Sheets and Net Interest Analysis (Dollar Amounts in Thousands) 1995 1994 1993 Average Income/ Yield or Average Income/ Yield or Average Income/ Yield or Balance Expense Rate(a) Balance Expense Rate(a) Balance Expense Rate(a) Assets Interest-earning assets: Time deposits with banks $ 8,552 $ 486 5.69% $ 14,677 $ 600 4.09% $ 37,905 $ 1,275 3.36% Investment securities 769,006 45,600 6.12 870,656 48,645 5.80 818,319 47,988 6.07 Federal funds sold 17,712 1,033 5.83 4,138 186 4.49 8,865 268 3.02 Loans (b) (c), net of unearned income 1,421,004 128,582 9.11 1,283,866 110,213 8.66 1,187,236 105,459 9.01 Total interest- earning assets 2,216,274 175,701 8.04 2,173,337 159,644 7.48 2,052,325 154,990 7.71 Noninterest-earning assets: Cash 53,752 54,542 48,794 Reserve for loan losses (17,584) (17,120) (16,399) Other assets 77,843 77,498 74,596 Total noninterest- earning assets 114,011 114,920 106,991 Total Assets $2,330,285 $2,288,257 $2,159,316 Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits $ 208,330 3,108 1.49% $ 226,824 3,764 1.66% $ 226,902 4,686 2.07% Savings deposits 464,021 11,858 2.56 503,327 11,520 2.29 493,323 11,908 2.41 Time deposits 1,060,070 58,855 5.55 948,804 45,901 4.84 922,456 46,473 5.04 Short-term borrowings 141,474 8,013 5.66 168,929 7,394 4.38 99,943 3,641 3.64 Long-term debt 7,010 584 8.33 7,744 523 6.75 7,985 456 5.71 Total interest- bearing liabilities 1,880,905 82,418 4.38 1,855,628 69,102 3.72 1,750,609 67,164 3.84 Noninterest-bearing liabilities and capital: Noninterest-bearing demand deposits 185,889 185,058 170,293 Other liabilities 21,429 18,576 17,428 Shareholders' equity 242,062 228,995 220,986 Total noninterest- bearing funding sources 449,380 432,629 408,707 Total Liabilities and Shareholders' Equity $2,330,285 $2,288,257 $2,159,316 Net Interest Income and Net Yield On Interest- earning Assets $ 93,283 4.32% $ 90,542 4.30% $ 87,826 4.43% (a) Yields on interest-earning assets have been computed on a tax equivalent basis using the 35% Federal income tax statutory rate. (b) Income on nonaccrual loans is accounted for on the cash basis, and the loan balances are included in interest-earning assets. (c) Loan income includes net loan fees.
12 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis Both interest income and interest expense increased as volumes increased. Average interest-earning assets increased $42.9 million in 1995. Average loans increased $137.1 million in 1995 and were supported by deposit growth and maturities of investment securities. During 1995 average investment securities decreased $101.7 million, primarily as a result of the sale of $74.0 million of U.S. Treasury securities, the proceeds of which were used to pay off short-term borrowings. The investment securities sold had an average yield of 4.91% while the short-term borrowings had an average cost over the remainder of the year of 5.74%. This transaction increased net interest income by $342 thousand in 1995. The sale of U.S. Treasury securities during 1995 also had a favorable impact on total investment yields during the year as the securities sold had a lower yield compared to other securities in the portfolio. Both asset yields and the cost of funds increased in 1995. Asset yields, on a tax-equivalent basis, increased 56 basis points (0.56%) during 1995 while the cost of funds increased 66 basis points (0.66%). Conversely, during 1994 both asset yields and cost of funds decreased. Asset yields decreased 23 basis points (0.23%) in 1994 while the cost of funds decreased 12 basis points (0.12%). During 1995 loan yields increased 45 basis points (0.45%) when compared to the year ended December 31, 1994, but may have reached their peak. After improving each quarter of 1994 and 1995, loan yields declined during the fourth quarter of 1995. Loan yields may decline further as the portfolio is impacted by declining interest rates and innovative loan product offerings which bear lower introductory interest rates. These loan products are designed to initiate relationships in the early stages of a customer's financial life cycle so they may be developed thereafter with more traditional banking products and services. Any initial earnings reduction related to the new products are expected to produce long-term profitable relationships and loan yields. Prepayments of mortgage backed securities ("MBS") remained steady during 1995 and have not been significantly impacted by declining interest rates. The primary risk of owning MBS relates to the uncertainty of prepayments of the underlying mortgages. Interest rate changes have a direct impact on prepayment speeds. As interest rates increase, prepayment speeds generally decline, resulting in a longer average life of a MBS. Conversely as interest rates decline, prepayment speeds increase, resulting in a shorter average life of a MBS. Using computer simulation models, the Corporation tests the average life and yield volatility of all MBSs under various interest rate scenarios on a continuing basis to insure that volatility falls within acceptable limits. The Corporation holds no "high risk" securities nor does the Corporation own any securities of a single issuer exceeding 10% of shareholders' equity other than U.S. Government and Agency securities. Average interest-bearing deposits increased $53.5 million during 1995 as a result of declines of $57.8 million in interest-bearing demand deposits and savings accounts combined with increases of $111.3 million in time deposits. Time deposits increased primarily in the 12 to 23 month maturity range. Since renewal rates were higher than the expiring rates for most of 1995, these deposits experienced a rate increase of 189 basis points (1.89%) compared to 1994. Deposit costs increased 57 basis points (0.57%) during 1995 while deposit costs declined 20 basis points (0.20%) during 1994. Although the cost of funds increased more rapidly than earning asset yields during 1995, loan growth throughout the year maintained the margin. Net interest margin (net interest income, on a tax-equivalent basis as a percentage of average earning assets), was 4.32% during 1995 compared to 4.30% in 1994 and 4.43% in 1993. The Corporation's use of computer modeling to manage interest rate risk is described in the "Interest Sensitivity" section of this discussion herein. 13 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis The following table shows the effect of changes in volumes and rates on interest income and interest expense.
Analysis of Year-to-Year Changes in Net Interest Income (Dollar Amounts in Thousands) 1995 Change from 1994 1994 Change from 1993 Total Change Due Change Due Total Change Due Change Due Change to Volume to Rate Change to Volume to Rate Interest-earning assets: Time deposits with banks $ (114) $ (251) $ 137 $ (675) $ (780) $ 105 Securities (3,045) (5,896) 2,851 657 3,177 (2,520) Federal funds sold 847 609 238 (82) (143) 61 Loans 18,369 11,876 6,493 4,754 8,706 (3,952) Total interest income 16,057 6,338 9,719 4,654 10,960 (6,306) Interest-bearing liabilities: Deposits 12,636 4,176 8,460 (1,882) 1,567 (3,449) Short-term borrowings 619 (1,202) 1,821 3,753 2,511 1,242 Long-term debt 61 (50) 111 67 (14) 81 Total interest expense 13,316 2,924 10,392 1,938 4,064 (2,126) Net interest income $ 2,741 $ 3,414 $ (673) $2,716 $ 6,896 $(4,180)
The provision for possible loan losses is an amount added to the reserve against which loan losses are charged. The amount of the provision is determined by management based upon its assessment of the size and quality of the loan portfolio and the adequacy of the reserve in relation to the risks inherent within the loan portfolio. The provision for possible loan losses was $4.1 million in 1995 compared to $2.9 million in 1994 and 1993. The provision for possible loan losses increased in 1995 as a result of growth in the portfolio as a whole, combined with charge-offs and increased delinquencies of consumer installment and revolving credit loans. Net charge-offs against the reserve for possible loan losses were $3.3 million, or 0.23% of average total loans in 1995. This compared to $2.0 million in 1994 and $2.3 million in 1993. Net charge-offs were 0.16% and 0.19% of average total loans in 1994 and 1993, respectively. Although charge-offs as a percentage of average total loans increased for 1995 in comparison to prior periods, this increase has not exceeded peer averages. In response to charge-offs during the fourth quarter of 1995 in the amount of $1.3 million, of which more than half were loans to individuals, the provision for possible loan losses in the fourth quarter of 1995 was $1.7 million. For an analysis of credit quality, see the "Credit Review" section of this discussion. 14 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis The following table presents an analysis of the consolidated reserve for possible loan losses for the five years ended December 31, 1995 (dollars in thousands):
Summary of Loan Loss Experience 1995 1994 1993 1992 1991 Loans outstanding at end of year $1,487,542 $1,377,794 $1,211,109 $1,165,494 $1,009,595 Average loans outstanding $1,421,004 $1,283,866 $1,187,236 $1,094,197 $ 977,620 Reserve for possible loan losses: Balance, beginning of year $ 17,337 $ 16,483 $ 15,828 $ 10,681 $ 9,277 Addition as result of acquisition -0- -0- -0- 4,501 -0- Loans charged off: Commercial, financial and agricultural 1,161 1,246 774 860 2,007 Loans to individuals 2,316 1,676 1,825 1,906 1,889 Real estate-construction -0- -0- -0- -0- -0- Real estate-commercial 218 23 791 706 447 Real estate-residential 423 179 357 650 424 Lease financing receivables 52 52 106 127 117 Total loans charged off 4,170 3,176 3,853 4,249 4,884 Recoveries of loans previously charged off: Commercial, financial and agricultural 132 254 563 371 153 Loans to individuals 518 563 565 397 600 Real estate-construction -0- -0- -0- -0- -0- Real estate-commercial 56 249 276 317 27 Real estate-residential 55 61 177 47 47 Lease financing receivables 99 7 7 19 10 Total recoveries 860 1,134 1,588 1,151 837 Net loans charged off 3,310 2,042 2,265 3,098 4,047 Provision charged to expense 4,125 2,896 2,920 3,744 5,451 Balance, end of year $ 18,152 $ 17,337 $ 16,483 $ 15,828 $ 10,681 Ratios: Net charge-offs as a percentage of average loans outstanding 0.23% 0.16% 0.19% 0.28% 0.41% Reserve for possible loan losses as a percentage of average loans outstanding 1.28% 1.35% 1.39% 1.45% 1.09%
Total other operating income declined $5.8 million in 1995 to $10.4 million from $16.2 million reported in 1994 and can be compared to $14.5 million in 1993. Net securities losses of $603 thousand in 1995 compared to securities gains of $5.5 million in 1994 resulted in a decrease of $6.1 million. The securities losses during 1995 resulted from the sale of $77.6 million of securities, primarily U.S. Treasury securities classified as "available for sale". As previously described in this discussion, the proceeds from the sale of $74.0 million of these U.S. Treasury securities were used to pay off short-term borrowings. This transaction is expected to result in a net improvement in net interest income in excess of the net loss on the sale. Since the short-term borrowings were at a variable rate, the exact benefit is not determinable until after the securities would have matured. During 1994 $7.5 million of securities classified as "held-to-maturity" were sold at a net gain of $16 thousand. All but one security were called and were sold within three months of the call date. The remaining security was sold because of a significant deterioration of the issuer's creditworthiness. Also during 1994, the Corporation sold 115,000 shares of Federal Home Loan Mortgage Corporation common stock with a book value of $970 thousand for a gain of $5.3 million in anticipation of a market value decline if interest rates continued to rise. 15 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis During 1993 marketable equity securities with a book value of $1.6 million were sold for a $1.0 million gain. The remaining securities transactions during 1994 and 1993 were primarily the sales of U.S. Treasury securities, U.S. Government agency securities maturing within a year and proceeds were reinvested in U.S. Treasury securities and U.S. Government agency securities with maturities of 2-4 years. Although the market values of assets managed increased during 1995, trust income decreased by $53 thousand, primarily as a result of lower income on estates than in prior periods. Trust income decreased $106 thousand during 1994 as the market value of assets managed declined, reflecting the turbulent bond and stock markets, thereby reducing the billing basis for many of the trust accounts. Service charges on deposits increased for all periods reported, primarily as a result of increased average total deposits. Total other operating expenses increased $1.2 million to $62.1 million in 1995 and compared to $60.9 million and $59.4 million in 1994 and 1993, respectively. Results for the 1994 period included merger costs of $1.7 million. Employee costs during 1995 were $33.0 million, an increase of $3.0 million over the 1994 level of $30.0 million. Included in employee costs for 1995 were early retirement settlements and other benefit adjustments of $1.3 million. Excluding early retirement settlements and other benefit adjustments, employee costs increased 5.8% during 1995 primarily because of an increase in the number of full time equivalent employees in customer service areas and the cost of employee insurances and hospitalization. Employee costs as a percentage of average assets was 1.42% in 1995 up from 1.31% in 1994 and 1.36% in 1993. Salary levels are generally maintained through attrition management programs. Cost savings for 1996 can be anticipated in hospitalization expenses as a result of converting to a managed health care plan beginning in January 1996. Employee costs will also be impacted positively as various functional areas of the Corporation, such as accounting, human resource and marketing are redesigned to more efficiently support the new organizational structure resulting from the merger of eight commercial bank subsidiaries into a single operating unit during 1995. Net occupancy expense and furniture and equipment increased $360 thousand in 1995 as a result of increased utilization of leased equipment. As various operational areas of the organization such as loan processing are redesigned for greater efficiency, leased equipment is being used until long-term equipment requirements can be identified. Leased equipment although increasing costs over the short-term will allow for flexibility in systems design and save costs over the long-term as furniture and equipment will not be purchased until the process redesign has been completed. Net occupancy expense and furniture and equipment increased in 1994 as the costs of maintenance and repairs decreased and depreciation increased as the process of automating loan documentation and the branch network progressed. This upgrade is expected to improve platform productivity and reduce loan documentation risks. The deposit insurance assessment from the Federal Deposit Insurance Corporation ("FDIC") decreased by $1.8 million in 1995 to $2.4 million from $4.2 million and $4.1 million in 1994 and 1993 respectively. Since the FDIC Bank Insurance Fund has reached its regulatory cap the assessment rate for banks was reduced from $0.23 per $100 of deposits to $0.04 per $100 of deposits effective June, 1995. For 1996 the Corporation's commercial bank subsidiary will be assessed the minimum FDIC assessment of $2 thousand. As a result of the Savings and Loan Insurance Fund remaining underfunded, Congress could enact an additional one-time pretax assessment against the thrift deposits of the Corporation during 1996. While the amount and likelihood of the assessment is uncertain the impact could be as much as $1.0 million. 16 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis Other operating expenses decreased $374 thousand in 1995 to $18.2 million and can be compared to $18.6 million in 1994 and $17.7 million in 1993. The 1994 period contained merger related expenses in the amount of $1.7 million. After adjusting the 1994 total for the $1.7 million of merger costs deducted, other operating expenses really increased by $1.3 million in 1995 and decreased by $835 thousand in 1994. The amortization of core deposit intangibles decreased $210 thousand in 1995 and $484 in 1994 as the intangibles related to mergers which occurred in 1984 and 1985 became fully amortized in 1995. The primary cost increases which occurred in 1995 included the collection of loans or the disposition of real estate acquired in lieu of loan repayment. Additional expenses of $129 thousand were also incurred during 1995 as a result of the conversion of computer systems of recently acquired subsidiaries to those of the Corporation and conversion of a new trust processing system by the Corporation's trust subsidiary. Stationery and supplies expense increased by $196 thousand during 1995 primarily as a result of the merger of eight commercial bank subsidiaries which caused some supplies to become obsolete. Aggressive marketing of innovative products and specialized customer services during 1995 caused increases in advertising, promotions and printing expenses totalling $299 thousand. Postage costs increased $131 thousand in 1995 as a result of rate increases. Restructuring costs had an impact on legal and professional fees which increased by $296 thousand during 1995 as organizational changes were evaluated and implemented. Income tax expense was $12.0 million during 1995 representing a decrease of $2.3 million over the 1994 total of $14.2 million and compared to $12.4 million in 1993. Taxable income decreased $6.4 million during 1995 while taxable income increased $5.3 million in 1994. The Corporation's effective tax rate decreased to 31.9% in 1995 from 33.1% in 1994 and compares to 31.1% in 1993. The most significant factor for the decrease in the 1995 effective rate compared to 1994 is related to the nondeductibility of merger expenses incurred in 1994 for income tax purposes. 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 the 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, all of 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. 17 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis The Corporation's long-term liquidity source is a large core deposit base and a strong capital position. Core deposits are the most stable source of liquidity a bank can have due to the long-term relationship with a deposit customer. Deposits increased $81.7 in 1995 and included $42.3 million in core deposits. Non-core deposits, which are time deposits in denominations of $100 thousand or more represented 8.52% of total deposits at December 31, 1995. Non-core deposits increased by $39.4 million in 1995 primarily as a result of an increase in public funds. Time deposits of $100 thousand or more at December 31, 1995, 1994 and 1993 had remaining maturities as follows:
Maturity Distribution of Large Certificates of Deposit (Dollar Amounts in Thousands) 1995 1994 1993 Amount Percent Amount Percent Amount Percent Remaining Maturity: 3 months or less $ 40,377 24% $ 37,968 30% $ 21,229 20% Over 3 months through 6 months 26,331 16 10,191 8 16,078 16 Over 6 months through 12 months 32,357 19 17,885 14 17,996 17 Over 12 months 68,241 41 61,841 48 48,645 47 Total $167,306 100% $127,885 100% $103,948 100%
Net loans increased $109.7 million during 1995 primarily in the categories of consumer loans and real estate loans secured by residential properties. In combination these categories represented over 70% of the loan growth during 1995, reflecting a strengthening of consumer loan demand. Below is a schedule of loans by classification for the five years ended December 31, 1995.
Loans by Classification (Dollar Amounts in Thousands) 1995 1994 1993 1992 1991 Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Commercial, financial, agricultural and other $ 192,530 13% $ 180,373 13% $ 179,227 14% $ 216,183 18% $ 274,799 26% Real estate-construction 22,969 1 23,131 2 12,980 1 17,007 1 14,696 1 Real estate-commercial 293,095 19 268,417 19 238,864 19 204,853 17 121,578 12 Real estate-residential 616,661 40 587,734 41 511,889 41 484,218 40 405,078 39 Loans to individuals 381,729 25 332,167 23 279,357 23 259,419 22 212,323 20 Net leases 24,190 2 30,498 2 26,617 2 23,521 2 19,121 2 Gross loans and leases 1,531,174 100% 1,422,320 100% 1,248,934 100% 1,205,201 100% 1,047,595 100% Unearned income (43,632) (44,526) (37,825) (39,707) (38,000) Total loans, and leases net of unearned income $1,487,542 $1,377,794 $1,211,109 $1,165,494 $1,009,595
An additional source of liquidity are marketable securities that the Corporation holds in its investment portfolio. These securities are classified as "securities available for sale". While the Corporation does not have specific intentions to sell these securities, they 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 December 31, 1995, securities available for sale had an amortized cost of $242.9 million and a market value of $244.2 million. Gross unrealized gains were $2.3 million and gross unrealized losses were $1.1 million. Based upon the Corporation's historical ability to fund liquidity needs from other sources, the current available for sale portfolio is deemed more than adequate, as the Corporation does not anticipate a need to liquidate the investments until maturity. 18 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis Below is a schedule of the maturity distribution of securities held to maturity and securities available for sale at December 31, 1995.
Maturity Distribution of Securities Held to Maturity (Dollar Amounts in Thousands) U.S. Treasury, and other States and Total Weighted U.S. Government Agencies Political Other Amortized Average and Corporations Subdivisions Securities Cost Yield* Within 1 year $ 5,473 $ 5,122 $ 4,666 $ 15,261 6.51% After 1 but within 5 years 121,844 19,905 8,092 149,841 5.94 After 5 but within 10 years 176,333 32,201 3,952 212,486 6.15 After 10 years 122,170 4,621 130 126,921 6.06 Total $425,820 $61,849 $16,840 $504,509 6.08% Maturity Distribution of Securities Available for Sale At Amortized Cost (Dollar Amounts in Thousands) U.S. Treasury, and other States and Total Weighted U.S. Government Agencies Political Other Amortized Average and Corporations Subdivisions Securities Cost Yield* Within 1 year $ 37,168 $ 272 $ 499 $ 37,939 5.06% After 1 but within 5 years 95,380 -0- 1,258 96,638 5.80 After 5 but within 10 years 1,113 -0- 1,717 2,830 7.65 After 10 years 79,372 -0- 26,147 105,519 6.70 Total $213,033 $ 272 $29,621 $242,926 6.10% *Yields are calculated on a tax-equivalent basis.
Interest Sensitivity The objective of interest rate sensitivity management is to maintain an appropriate balance between the stable growth of income and the risks associated with maximizing income through interest sensitivity imbalances. While no single number can accurately describe the impact of changes in interest rates on net interest income, interest rate sensitivity positions, or "gaps" when measured over a variety of time periods may be helpful. An asset or liability is considered to be interest-sensitive if the rate it yields or bears is subject to change within a predetermined time period. If interest-sensitive assets ("ISA") exceeds interest-sensitive liabilities ("ISL") during a 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 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. 19 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis 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 December 31, 1995 and 1994 (Dollar Amounts in Thousands):
1995 Cumulative 0-90 Days 91-180 Days 181-365 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 deposit 223,659 130,053 257,833 611,545 Other deposits 680,303 -0- -0- 680,303 Short-term 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% 1994 Cumulative 0-90 Days 91-180 Days 181-365 Days 0-365 Days Loans $ 423,116 $ 95,292 $182,799 $ 701,207 Investments 20,298 24,414 55,647 100,359 Other interest-earning assets 92,845 6,696 6,707 106,248 Total interest-sensitive assets 536,259 126,402 245,153 907,814 Certificates of deposit 166,557 114,482 125,588 406,627 Other deposits 687,882 -0- -0- 687,882 Short-term borrowings 174,728 16,554 4,074 195,356 Total interest-sensitive liabilities 1,029,167 131,036 129,662 1,289,865 Gap $ (492,908) $ (4,634) $115,491 $ (382,051) ISA/ISL 0.52 0.96 1.89 0.70 Gap/Total assets 21.11% 0.20% 4.95% 16.36%
20 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis Final loan maturities and rate sensitivity of the loan portfolio excluding consumer installment and mortgage loans and before unearned income at December 31, 1995 were as follows (Dollar Amounts in Thousands): Within One One to After Year 5 Years 5 Years Total Commercial and industrial $ 85,772 $ 39,145 $ 38,417 $163,334 Financial institutions 180 47 -0- 227 Real estate-construction 16,580 2,170 4,219 22,969 Real estate-commercial 74,053 66,772 152,270 293,095 Other 3,699 6,586 18,684 28,969 Totals $180,284 $114,720 $213,590 $508,594 Loans at fixed interest rates 77,995 134,155 Loans at variable interest rates 36,725 79,435 Totals $114,720 $213,590 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. Therefore, to more precisely measure the impact of interest rate changes on the Corporation's net interest margin, management simulates the potential effects of changing interest rates through computer modeling. The Corporation is then better able to implement strategies which would include an acceleration of a deposit rate reduction or a lag in a deposit rate increase. The repricing strategies for loans would be inversely related. The analysis at December 31, 1995 indicated that a 300 basis point movement in interest rates in either direction would not have a significant impact on the Corporation's anticipated net interest income over the next twelve months. Credit Review Maintaining a high quality loan portfolio is of great importance to the Corporation. The Corporation manages the risk characteristics of the loan portfolio through the use of prudent lending policies and procedures and monitors risk through a periodic review process provided by external auditors, internal auditors, regulatory authorities and our loan review staff. These reviews include the analysis of credit quality, diversification of industry, compliance to policies and procedures, and an analysis of current economic conditions. In the management of its credit portfolio, the Corporation emphasizes the importance of the collectibility of loans and leases as well as asset and earnings diversification. The Corporation immediately recognizes as a loss all credits judged to be uncollectible and has established a reserve for possible credit losses that may exist in the portfolio at a point in time, but have not been specifically identified. The Corporation's written lending policy requires certain underwriting standards to be met prior to funding any loan, including requirements for credit analysis, collateral value coverage, documentation, and terms. The principal factor used to determine potential borrowers' creditworthiness is business cash flows or consumer income available to service debt payments. Secondary sources of repayment, including collateral or guarantees, are frequently obtained. 21 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis The lending policy provides limits for individual and bank committees lending authorities. In addition to the bank loan approval process, requests for borrowing relationships which will exceed one million dollars must also be approved by the Corporation's Credit Committee. This Committee consists of a minimum of three members of the Corporation's board of directors. Commercial and industrial loans are generally granted to small and middle market customers for operating, expansion or asset acquisition purposes. Operating cash flows of the business enterprise are identified as the principal source of repayment, with business assets held as collateral. Collateral margins and loan terms are based upon the purpose and structure of the transaction as set forth in loan policy. Commercial real estate loans are granted for the acquisition or improvement of real property. Generally, commercial real estate loans do not exceed 75% of the appraised value of property pledged to secure the transaction. Repayment of such loans are expected from the operations of the subject real estate and are carefully analyzed prior to approval. Real estate construction loans are granted for the purposes of constructing improvements to real property, both commercial and residential. On-site inspections are conducted by qualified individuals prior to periodic permanent project financing, which is generally committed prior to the commencement of construction financing. Real estate loans secured by 1-4 family residential housing properties are granted subject to statutory limits in effect for each bank regarding the maximum percentage of appraised value of the mortgaged property. Residential loan terms are normally established in compliance with secondary market requirements. Residential mortgage portfolio interest rate risk is controlled by secondary market sales, variable interest rate loans and balloon maturities. Loans to individuals represent financing extended to consumers for personal or household purposes, including automobile financing, education, home improvement, and personal expenditures. These loans are granted in the form of installment, credit card, or revolving credit transactions. Consumer creditworthiness is evaluated on the basis of ability to repay, stability of income sources, and past credit history. Since all identified losses are immediately charged off, no portion of the reserve is restricted to any individual credit or groups of credits, and the entire reserve is available to absorb any and all credit losses. However, for analytical purposes, the following table sets forth an allocation of the reserve for possible loan losses at December 31 according to the categories indicated:
Allocation of the Reserve for Possible Loan Losses (Dollar Amounts in Thousands) 1995 1994 1993 1992 1991 Commercial, industrial, financial, agricultural and other $ 1,800 $ 2,443 $ 2,541 $ 5,488 $ 4,579 Real estate-construction 220 215 146 98 124 Real estate-commercial 3,253 3,328 3,389 1,750 1,405 Real estate-residential 4,334 4,532 4,151 3,186 1,481 Loans to individuals 2,377 2,417 1,978 1,991 1,343 Lease financing receivables 162 243 552 182 139 Unallocated 6,006 4,159 3,726 3,133 1,610 Total $18,152 $17,337 $16,483 $15,828 $10,681 Reserve as percentage of average total loans 1.28% 1.35% 1.39% 1.45% 1.09%
22 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis The unallocated portion of the reserve for possible loan losses increased during 1995 in both total dollars and as a percentage of the total reserve. Various factors impacted this increase but most notably were an amount set aside to provide for loan growth and an increase in net charge-offs in the fourth quarter of 1995 which reduced the balances for which a specific reserve had been allocated. Other than those described below, there are no material credits that management has serious doubts as to the borrower's ability to comply with the present loan repayment terms. The following table identifies nonperforming loans at December 31. A loan is placed in a nonaccrual status at the time when ultimate collectibility of principal or interest, wholly or partially, is in doubt. Past due loans are those which were contractually past due 90 days or more as to interest or principal payments but are well secured and in the process of collection. Renegotiated loans are those which terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the deteriorating financial position of the borrower.
Nonperforming and Impaired Assets and Effect on Interest Income Due to Nonaccrual (Dollar Amounts in Thousands) 1995 1994 1993 1992 1991 Loans on nonaccrual basis $ 7,419 $ 9,575 $ 9,672 $ 9,328 $ 6,089 Past due loans 7,881 6,936 9,106 7,578 6,266 Renegotiated loans 803 733 1,413 1,229 1,086 Total nonperforming loans $16,103 $17,244 $20,191 $18,135 $13,441 Nonperforming loans as a percentage of total loans 1.08% 1.25% 1.67% 1.56% 1.33% Reserve as percentage of nonperforming loans 112.72% 100.54% 81.64% 87.28% 79.47% Other real estate owned $ 1,408 $ 2,269 $5,590 $4,894 $2,599 Gross income that would have been recorded at original rates $ 857 $ 1,085 $ 929 $ 1,080 $ 579 Interest that was reflected in income 161 164 204 139 41 Net reduction to interest income due to nonaccrual $ 696 $ 921 $ 725 $ 941 $ 538
The reduction of income due to renegotiated loans was less than $50 thousand in any year presented. The ratio of the reserve for possible loan losses as a percentage of nonperforming loans has steadily increased over the past five years strengthening the reserve's ability to absorb credit losses. At December 31, 1995 the ratio of the reserve for possible loan losses as a percentage of nonperforming loans remains lower than the Corporation's peers and although this ratio is an indicator of the strength of the reserve for possible loan losses it does not in itself measure loan loss reserve adequacy. Other factors to be considered include historical loan losses and nonperforming loan levels. These measurements were favorable when compared to peer group levels over the past five years. Management believes that the reserve for possible loan losses and nonperforming loans remains safely within acceptable levels. 23 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis Effective January 1, 1995 the Corporation adopted Financial Accounting Standards Board Statement No. 114 "Accounting by Creditors for Impairment of a Loan" ("FAS No. 114"), as amended by Statement No. 118 "Accounting by Creditors for Impairment of a Loan Income Recognition and Disclosures" ("FAS No. 118"). This statement addresses the accounting by creditors for impairment of a loan by specifying how allowances for credit losses related to certain loans should be determined. For an analysis of the impact of implementation of FAS No. 118 see NOTE 7 to the consolidated financial statements. Capital Resources Equity capital increased $27.1 million in 1995 to $252.3 million. Dividends declared decreased equity by $14.8 million, an increase over the 1994 period as the dividend rate was increased. The retained net income remains in permanent capital to fund future growth and expansion. Payments by the Corporation's Employee Stock Ownership Plan ("ESOP") to reduce debt it incurred to acquire the Corporation's common stock for future distribution as employee compensation, net of additional advances, and fair value adjustments to unearned ESOP shares, increased equity capital by $675 thousand. The market value adjustment to securities available for sale increased capital by $17.3 million as market values rebounded. Amounts paid to fund the discount on reinvested dividends and optional cash payments reduced equity by $342 thousand. The cost of purchasing treasury shares decreased equity by $1.6 million while proceeds from the reissuance of treasury shares to provide for stock options exercised increased equity capital by $316 thousand during 1995. 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 has issued risk-based capital adequacy guidelines which went into effect in stages through 1992. The risk-based capital standard is 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 certain 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 total assets. The minimum leverage ratio is not specifically defined, but is generally expected to be 4-5 percent for all but the most highly rated banks, as determined by a regulatory rating system. 24 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis Capital Resources (Continued) The table below presents the Corporation's capital position at December 31, 1995: Percent Amount of Adjusted (in thousands) Assets Tier I Capital $238,186 16.5 Risk-Based Requirement 57,607 4.0 Total Capital 256,331 17.8 Risk-Based Requirement 115,214 8.0 Minimum Leverage Capital 238,186 10.2 Minimum Leverage Requirement 93,369 4.0 Inflation and Changing Prices Management is aware of the impact inflation has on interest rates and therefore the impact it can have on a bank's performance. The ability of a financial institution to cope with inflation can only be determined by analysis and monitoring of its asset and liability structure. The Corporation monitors its asset and liability position with particular emphasis on the mix of interest-sensitive assets and liabilities in order to reduce the effect of inflation upon its performance. However, it must be remembered that the asset and liability structure of a financial institution is substantially different from an industrial corporation in that virtually all assets and liabilities are monetary in nature, meaning that they have been or will be converted into a fixed number of dollars regardless of changes in general price levels. Examples of monetary items include cash, loans and deposits. Nonmonetary items are those assets and liabilities which do not gain or lose purchasing power solely as a result of general price level changes. Examples of nonmonetary items are premises and equipment. Inflation can have a more direct impact on categories of noninterest expenses such as salaries and wages, supplies and employee benefit costs. These expenses are very closely monitored by management for both the effects of inflation and increases relating to such items as staffing levels, usage of supplies and occupancy costs. 25 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Consolidated Balance Sheets (Dollar Amounts in Thousands) December 31, 1995 1994 Assets Cash and due from banks on demand...........$ 62,381 $ 66,055 Interest-bearing deposits with banks........ 8,288 13,686 Federal funds sold.......................... 4,800 -0- Securities available for sale, at market.... 244,193 443,189 Securities held to maturity, at cost, market value $503,568 in 1995 and $348,074 in 1994 504,509 370,498 Loans....................................... 1,531,174 1,422,320 Unearned income........................... (43,632) (44,526) Reserve for possible loan losses.......... (18,152) (17,337) Net loans............................ 1,469,390 1,360,457 Property and equipment...................... 29,435 29,196 Other real estate owned..................... 1,408 2,269 Other assets................................ 39,903 49,571 Total assets.........................$2,364,307 $2,334,921 Liabilities Deposits (All Domestic): Noninterest-bearing.......................$ 200,939 $ 199,172 Interest-bearing.......................... 1,761,821 1,681,888 Total deposits....................... 1,962,760 1,881,060 Short-term borrowings....................... 120,774 201,706 Other liabilities........................... 23,236 19,424 Long-term debt.............................. 5,261 7,596 Total liabilities.................... 2,112,031 2,109,786 Shareholders' Equity Preferred stock, $1 par value per share, 3,000,000 shares authorized and unissued.............................. -0- -0- Common stock, $1 par value per share, 100,000,000 shares authorized, 22,436,628 shares issued and 22,371,626 outstanding in 1995; 22,436,628 shares issued and 22,430,728 shares outstanding in 1994..... 22,437 22,437 Additional paid-in capital.................. 77,226 77,964 Retained earnings........................... 157,576 146,814 Unrealized gain (loss) on securities available for sale, net of taxes.......... 511 (16,802) Treasury stock (65,002 and 5,900 shares at December 31, 1995 and 1994, respectively at cost).................................. (929) (82) Unearned ESOP shares........................ (4,545) (5,196) Total shareholders' equity........... 252,276 225,135 Total liabilities and shareholders' equity..........$2,364,307 $2,334,921 The accompanying notes are an integral part of these consolidated financial statements. 26 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Consolidated Statements of Income (Dollar Amounts in Thousands, except per share data)
Years Ended December 31, 1995 1994 1993 Interest Income Interest and fees on loans................ $128,582 $110,213 $105,459 Interest and dividends on investments: Taxable interest........................ 41,775 44,187 44,068 Interest exempt from Federal income taxes.......................... 2,785 3,430 3,068 Dividends............................... 1,040 1,028 852 Interest on Federal funds sold............ 1,033 186 268 Interest on bank deposits................. 486 600 1,275 Total interest income................. 175,701 159,644 154,990 Interest Expense Interest on deposits..................... 73,821 61,185 63,067 Interest on short-term borrowings........ 8,013 7,394 3,641 Interest on long-term debt............... 584 523 456 Total interest expense............... 82,418 69,102 67,164 Net interest income........................ 93,283 90,542 87,826 Provision for possible loan losses......... 4,125 2,896 2,920 Net interest income after provision for possible loan losses..................... 89,158 87,646 84,906 Other Income Net securities gains (losses)............ (603) 5,536 3,528 Trust income............................. 2,173 2,226 2,332 Service charges on deposit accounts...... 5,601 5,382 5,208 Other income............................. 3,233 3,027 3,420 Total other income................... 10,404 16,171 14,488 Other Expenses Salaries and employee benefits........... 33,034 30,035 29,369 Net occupancy expense.................... 4,347 4,238 4,165 Furniture and equipment expense.......... 4,110 3,859 4,085 FDIC expense............................. 2,373 4,151 4,051 Other operating expenses................. 18,198 18,572 17,735 Total other expenses................. 62,062 60,855 59,405 Income before taxes and cumulative effect of change in accounting method................................... 37,500 42,962 39,989 Applicable income taxes.................... 11,974 14,226 12,444 Net income before cumulative effect of change in accounting method........... 25,526 28,736 27,545 Cumulative effect of change in accounting method....................... -0- -0- 865 Net Income................................. $25,526 $28,736 $28,410 Average Shares Outstanding................. 22,005,427 22,432,062 22,416,360 Per share data: Net income before cumulative effect of change in accounting method......... $1.16 $1.28 $1.23 Cumulative effect of change in accounting method...................... 0.00 0.00 0.04 Net income............................... $1.16 $1.28 $1.27 The accompanying notes are an integral part of these consolidated financial statements.
27 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Consolidated Statements of Changes in Shareholders' Equity (Dollar Amounts in Thousands)
Unrealized Gain (Loss) on Additional Securities Unearned Total Common Paid-in Retained Available ESOP Treasury Shareholders' Stock Capital Earnings For Sale Shares Stock Equity Balance at December 31, 1992........... $22,517 $79,253 $114,277 $ -0- $(4,913) $ (447) $210,687 Net income............................ -0- -0- 28,410 -0- -0- -0- 28,410 Cash dividends declared............... -0- -0- (8,944) -0- -0- -0- (8,944) Cash dividends declared by pooled subsidiaries prior to merger......... -0- -0- (2,356) -0- -0- -0- (2,356) Unrealized gain on securities available for sale, net of tax effect.......... -0- -0- -0- 1,584 -0- -0- 1,584 Tax benefit on ESOP dividends......... -0- -0- 84 -0- -0- -0- 84 Decrease in unearned ESOP shares...... -0- -0- -0- -0- 464 -0- 464 Discount on dividend reinvestment plan purchases....................... -0- (159) -0- -0- -0- -0- (159) Treasury stock acquired by pooled subsidiary........................... -0- -0- -0- -0- -0- (973) (973) Treasury stock reissued by pooled subsidiary........................... -0- -0- (91) -0- -0- 204 113 Balance at December 31, 1993........... 22,517 79,094 131,380 1,584 (4,449) (1,216) 228,910 Net income............................ -0- -0- 28,736 -0- -0- -0- 28,736 Cash dividends declared............... -0- -0- (11,950) -0- -0- -0- (11,950) Cash dividends declared by pooled subsidiaries prior to merger......... -0- -0- (1,328) -0- -0- -0- (1,328) Change in market value of securities available for sale, net of tax effect -0- -0- -0- (18,386) -0- -0- (18,386) Tax benefit on ESOP dividends......... -0- -0- 81 -0- -0- -0- 81 Increase in unearned ESOP shares...... -0- -0- -0- -0- (747) -0- (747) Discount on dividend reinvestment plan purchases....................... -0- (212) -0- -0- -0- -0- (212) Treasury stock acquired............... -0- -0- -0- -0- -0- (82) (82) Treasury stock reissued by pooled subsidiary........................... -0- -0- (105) -0- -0- 218 113 Treasury stock cancelled in merger.... (80) (918) -0- -0- -0- 998 -0- Balance at December 31, 1994........... 22,437 77,964 146,814 (16,802) (5,196) (82) 225,135 Net income............................ -0- -0- 25,526 -0- -0- -0- 25,526 Cash dividends declared............... -0- -0- (14,764) -0- -0- -0- (14,764) Change in market value of securities available for sale, net of tax effect.............................. -0- -0- -0- 17,313 -0- -0- 17,313 Decrease in unearned ESOP shares...... -0- 24 -0- -0- 651 -0- 675 Discount on dividend reinvestment plan purchases....................... -0- (342) -0- -0- -0- -0- (342) Treasury stock acquired............... -0- -0- -0- -0- -0- (1,583) (1,583) Treasury stock reissued............... -0- (420) -0- -0- -0- 736 316 Balance at December 31, 1995........... $22,437 $77,226 $157,576 $ 511 $(4,545) $ (929) $252,276 The accompanying notes are an integral part of these consolidated financial statements.
28 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Consolidated Statements of Cash Flows (Dollar Amounts in Thousands)
Years Ended December 31, 1995 1994 1993 Operating Activities Net income............................................ $25,526 $28,736 $28,410 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible loan losses................. 4,125 2,896 2,920 Depreciation and amortization...................... 5,126 5,126 5,086 Net losses (gains) on sales of assets.............. 427 (5,555) (4,050) Increase in interest receivable.................... (765) (1,123) (2) Increase (decrease) in interest payable............ 3,349 631 (986) Increase (decrease) in income taxes payable........ (2,168) 135 945 Change in deferred taxes........................... 863 849 (1,181) Other - net........................................ 544 (3,917) (697) Net cash provided by operating activities....... 37,027 27,778 30,445 Investing Activities Transactions with securities held to maturity: Sales.............................................. -0- 7,476 99,479 Maturities and redemptions......................... 49,859 104,915 341,171 Purchases of investment securities................. (38,462) (70,246) (640,777) Transactions with securities available for sale: Sales.............................................. 76,999 51,427 -0- Maturities and redemptions......................... 46,965 73,296 -0- Purchases of investment securities................. (44,342) (94,197) -0- Proceeds from sales of loans and other assets......... 21,180 13,488 20,406 Net decrease in time deposits with banks.............. 5,398 6,848 34,653 Net increase in loans................................. (132,610) (178,299) (66,864) Purchases of premises and equipment................... (4,095) (5,578) (4,099) Net cash used by investing activities........... (19,108) (90,870) (216,031) Financing Activities Proceeds from issuance of long-term debt.............. -0- -0- 202 Repayments of long-term debt.......................... (1,684) (515) (505) Tax benefit of ESOP dividend.......................... -0- 81 84 Discount on dividend reinvestment plan purchases...... (342) (212) (159) Dividends paid........................................ (14,326) (10,878) (8,571) Dividends paid by pooled subsidiaries prior to merger. -0- (1,328) (2,351) Acquisition of treasury stock......................... (1,583) (82) (973) Reissuance of treasury stock.......................... 316 113 113 Net increase in deposits.............................. 81,759 59,079 33,940 Net increase (decrease) in Federal funds purchased.... (34,940) 20,220 45,955 Net increase (decrease) in other short-term borrowings (45,993) 5,302 74,355 Net cash provided (used) by financing activities (16,793) 71,780 142,090 Net increase (decrease) in cash and cash equivalents................................... 1,126 8,688 (43,496) Cash and cash equivalents at January 1.................. 66,055 57,367 100,863 Cash and cash equivalents at December 31................ $67,181 $66,055 $ 57,367 The accompanying notes are an integral part of these consolidated financial statements.
29 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 NOTE 1--Statement of Accounting Policies General The following summary of accounting and reporting policies is presented to aid the reader in obtaining a better understanding of the financial statements and related financial data of First Commonwealth Financial Corporation (the "Corporation") and its subsidiaries contained in this report. The financial information is presented in accordance with generally accepted accounting principles and general practice for financial institutions. In preparing financial statements management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. In addition, these estimates and assumptions affect revenues and expenses in the financial statements and as such, actual results could differ from those estimates. Through its subsidiaries which include a commercial bank, savings bank and nondepository trust company, the Corporation provides a full range of loan, deposit and trust services primarily to individuals and small to middle- market businesses in eighteen counties in central and western Pennsylvania. Basis of Presentation The accompanying consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries. All material intercompany transactions have been eliminated in consolidation. As part of the Corporation's long-term strategic plan, eight commercial banking subsidiaries began operating under a single banking charter during the fourth quarter of 1995. The merger was accounted for in a manner similar to a pooling of interests and accordingly the combined entity was recorded at historic cost. Investments of 20 to 50 percent of the outstanding common stock of investees are accounted for using the equity method of accounting. Securities Debt securities that the Corporation has the positive intent and ability to hold to maturity are classified as securities held-to-maturity and are reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are to be classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as securities available-for-sale and are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity, net of deferred taxes. The Corporation had securities classified as either held-to-maturity or available-for-sale. The Corporation does not engage in trading activities. Net gain or loss on the sale of securities was determined by using the specific identification method. Prior to the implementation of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities ("FAS No. 115"), effective December 31, 1993, investment securities were stated at cost adjusted for amortization of premium and accretion of discount. Marketable equity securities were carried at the lower of aggregate cost or market value. 30 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 1--Statement of Accounting Policies (Continued) Loans Loans are carried at the principal amount outstanding. Unearned income on installment loans is taken into income on a declining basis which results in an approximately level rate of return over the life of the loan. Interest is accrued as earned on nondiscounted loans. Effective January 1, 1995 the Corporation adopted Financial Accounting Standards Board Statement No. 114 "Accounting by Creditors for Impairment of a Loan", as amended by Statement No. 118 "Accounting By Creditors for Impairment of a Loan Income Recognition and Disclosures", ("FAS No. 118"). These statements address the accounting by creditors, such as banks, for the impairment of certain loans. The Corporation considers a loan to be impaired when, based on current information and events, it is probable that a creditor 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 loans 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. The adoption of FAS No. 118 did not have a material impact on the Corporation's financial condition or results of operations. Loan Fees Loan origination and commitment fees, net of associated direct costs, are deferred and the net amount is amortized as an adjustment to the related loan yield on the interest method, generally over the contractual life of the related loans or commitments. Other Real Estate Owned Real estate, other than bank premises, is recorded at the lower of cost or fair value less selling costs at the time of acquisition. Expenses related to holding the property, net of rental income, are generally charged against earnings in the current period. Reserve for Possible Loan Losses The reserve for possible loan losses represents management's estimate of an amount adequate to provide for losses which may be incurred on loans currently held. Management determines the adequacy of the reserve based on historical patterns of loan charge-offs and recoveries, the relationship of the reserve to outstanding loans, industry experience, current economic trends and other factors relevant to the collectibility of loans currently in the portfolio. 31 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 1--Statement of Accounting Policies (Continued) Premises and Equipment Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is computed on the straight-line and accelerated methods over the estimated useful life of the asset. Charges for maintenance and repairs are expensed as incurred. Where a lease is involved, amortization is charged over the term of the lease or the estimated useful life of the improvement, whichever is shorter. Income Taxes The Corporation records taxes in accordance with the asset and liability method utilized by Statement of Financial Accounting Standards No. 109 ("FAS No. 109"), whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases given the provisions of the enacted tax laws. Deferred tax assets are reduced, if necessary, by the amount of such benefits that are not expected to be realized based upon available evidence. Effective January 1, 1993, the Corporation adopted FAS No. 109 and has reported the cumulative effect of that change in method of accounting for income taxes in the 1993 consolidated statement of income. Cash Flow Statement Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and Federal funds sold. Generally, Federal funds are sold for one-day periods. Supplemental Disclosures Cash paid during the year for: 1995 1994 1993 Interest $79,069 $68,576 $68,379 Income taxes $13,266 $13,234 $11,334 Noncash investing and financing activities: ESOP borrowings $ 500 $ 1,730 $ 250 ESOP loan reductions $ 1,151 $ 983 $ 714 32 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 1--Statement of Accounting Policies (Continued) Supplemental Disclosures (Continued) 1995 1994 1993 Gross increase (decrease) in Market Value adjustment to securities available for sale pursuant to FAS No. 115 $ 26,635 $(28,285) $ 2,438 Net securities available for sale transferred to securities held to maturity $145,723 $ -0- $ -0- Net securities held to maturity transferred to securities available for sale upon implementation of FAS No. 115 $ -0- $ 31,011 $462,786 Earnings Per Common Share Earnings per share have been calculated on the weighted average number of common shares outstanding during each year, restated to reflect poolings of interests. Average number of shares for prior periods reflect the two-for- one stock split effected in the form of a 100% stock dividend declared on January 18, 1994. Employee Stock Ownership Plan In November 1993 the Accounting Standards Division of the American Institute of Certified Public Accountants issued Statement of Position 93-6 ("SOP 93- 6") "Employers' Accounting for Employee Stock Ownership Plans". This statement affects the accounting treatment of the Corporation's Employee Stock Ownership Plan ("ESOP") described in NOTE 15. The Corporation prospectively adopted SOP 93-6 for ESOP shares acquired after December 31, 1992 (new shares). As permitted by the Statement of Position the Corporation has elected not to adopt this statement for ESOP shares acquired on or before December 31, 1992 (old shares). ESOP shares purchased subject to debt guaranteed by the Corporation are recorded as a reduction of common shareholders' equity by charging unearned ESOP shares. As shares are committed to be released to the ESOP trust for allocation to plan participants unearned ESOP shares is credited for the cost of the shares to the ESOP. Compensation cost recognized for new shares in accordance with the provisions of SOP 93-6 is based upon the fair market value of the shares committed to be released. Additional paid-in capital is charged or credited for the difference between the fair value of the shares committed to be released and the cost of those shares to the ESOP. Compensation cost recognized for old shares committed to be released is recorded at the cost of those shares to the ESOP. 33 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 1--Statement of Accounting Policies (Continued) Employee Stock Ownership Plan (Continued) Dividends on both old and new unallocated ESOP shares are used for debt service and are reported as a reduction of debt and accrued interest payable. Dividends on allocated ESOP shares are charged to retained earnings and allocated to the plan participants accounts. The average number of common shares outstanding used in calculating earnings per share excludes all unallocated ESOP shares. NOTE 2--Business Combinations Effective September 29, 1994 the Corporation acquired all of the outstanding common shares of Reliable Financial Corporation ("Reliable"), a savings and loan holding company headquartered in Bridgeville, Pennsylvania. Each of the 1,410,194 outstanding shares were exchanged for 1.6 shares of the Corporation's common stock. Effective September 27, 1994 the Corporation acquired all of the outstanding common shares of United National Bancorporation ("United"), a bank holding company headquartered in Chambersburg, Pennsylvania. Each of the 769,147 outstanding shares were exchanged for two shares of the Corporation's common stock. Effective December 31, 1993 the Corporation acquired all of the outstanding common shares of Peoples Bank of Western Pennsylvania, a state chartered bank headquartered in New Castle, Pennsylvania. Each of the 375,000 outstanding shares of common stock were exchanged for two shares of the Corporation's common stock. The mergers were accounted for as poolings of interests, and accordingly, all financial statements were restated as though the mergers had occurred at the beginning of the earliest period presented. NOTE 3--Cash and Due From Banks on Demand Regulations of the Board of Governors of the Federal Reserve System impose uniform reserve requirements on all depository institutions with transaction accounts (checking accounts, NOW accounts, etc.). Reserves are maintained in the form of vault cash or a noninterest-bearing balance held with the Federal Reserve Bank. The subsidiary banks maintained with the Federal Reserve Bank average balances of $6,827 during 1995 and $6,359 during 1994. 34 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 4--Securities Available For Sale Below is an analysis of the amortized cost and approximate fair values of securities available for sale at December 31, 1995 and 1994:
1995 1994 Gross Gross Approximate Gross Gross Approximate Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value U.S. Treasury Securities $ 66,052 $ 472 $ (226) $ 66,298 $116,618 $ 31 $ (5,094) $111,555 Obligations of U.S. Government Corporations and Agencies: Mortgage Backed Securities 79,540 747 (109) 80,178 265,365 123 (16,581) 248,907 Other 67,441 264 (399) 67,306 61,367 40 (3,398) 58,009 Obligations of States and Political Subdivisions 272 -0- -0- 272 128 -0- -0- 128 Debt Securities Issued by Foreign Governments 710 -0- -0- 710 -0- -0- -0- -0- Corporate Securities 2,763 3 (1) 2,765 3,228 5 (15) 3,218 Other Mortgage Backed Securities 2,429 2 (3) 2,428 7,348 1 (60) 7,289 Total Debt Securities 219,207 1,488 (738) 219,957 454,054 200 (25,148) 429,106 Equities 23,719 829 (312) 24,236 14,822 -0- (739) 14,083 Total Securities Available for Sale $242,926 $2,317 $(1,050) $244,193 $468,876 $200 $(25,887) $443,189
Mortgage backed securities include mortgage backed obligations of the U.S. Government agencies and corporations, mortgage backed securities issued by other organizations and other asset backed securities. These obligations have contractual maturities ranging from less than one year to 31 years and have an anticipated average life to maturity ranging from less than one year to 25 years. All mortgage backed securities contain a certain amount of risk related to the uncertainty of prepayments of the underlying mortgages. Interest rate changes have a direct impact upon prepayment speeds, therefore the Corporation uses computer simulation models to test the average life and yield volatility of all mortgage backed securities under various interest rate scenarios to insure that volatility falls within acceptable limits. At December 31, 1995 and 1994 the Corporation owned no high risk mortgage backed securities as defined by the Federal Financial Institutions Examination Council's Supervisory Policy Statement on Securities Activities. 35 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 4--Securities Available For Sale (Continued) The amortized cost and estimated market value of debt securities at December 31, 1995, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties. Approximate Amortized Fair Cost Value Due within 1 year $ 37,939 $ 37,907 Due after 1 but within 5 years 96,469 96,613 Due after 5 but within 10 years 2,830 2,831 Due after 10 years -0- -0- 137,238 137,351 Mortgage backed securities 81,969 82,606 Total debt securities $219,207 $219,957 Proceeds from the sales of securities available for sale were $76,999 and $51,427 during 1995 and 1994 respectively. Gross gains of $136 and $5,610 and gross losses of $739 and $90 were realized on those sales during 1995 and 1994 respectively. In November of 1995 the Financial Accounting Standards Board issued implementation guidance for FAS No. 115 which permitted organizations to reassess the appropriateness of the classifications of all securities currently held. During the fourth quarter of 1995 the Corporation transferred securities with amortized cost of $19,803 from the held to maturity portfolio to the available for sale portfolio and securities with an amortized cost of $165,526 from the available for sale portfolio to the held to maturity portfolio. Gross unrealized gains of $285 and gross unrealized losses of $38 related to these transferred securities are included in securities available for sale at December 31, 1995. Gross unrealized gains of $628 and gross unrealized losses of $1,041 related to these transferred securities are included in securities held to maturity at December 31, 1995 and will be amortized over the remaining life of the securities. 36 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 5--Securities Held to Maturity Below is an analysis of the amortized cost and approximate fair values of debt securities held to maturity at December 31:
1995 1994 Gross Gross Approximate Gross Gross Approximate Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value U.S. Treasury Securities $ -0- $ -0- $ -0- $ -0- $ 4,934 $-0- $ (41) $ 4,893 Obligations of U.S. Government Corporations and Agencies: Mortgage Backed Securities 324,355 188 (1,297) 323,246 181,032 36 (13,206) 167,862 Other 101,465 288 (689) 101,064 100,047 19 (6,056) 94,010 Obligations of States and Political Subdivisions 61,681 754 (241) 62,194 69,658 368 (3,231) 66,795 Debt Securities Issued By Foreign Governments 15 -0- (1) 14 743 -0- (4) 739 Corporate Securities 6,196 19 (4) 6,211 6,277 8 (128) 6,157 Other Mortgage Backed Securities 10,797 47 (5) 10,839 7,807 -0- (189) 7,618 Total Debt Securities $504,509 $1,296 $(2,237) $503,568 $370,498 $431 $(22,855) $348,074
The amortized cost and estimated market value of debt securities at December 31, 1995, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties. Approximate Amortized Fair Cost Value Due within 1 year $ 14,288 $ 14,331 Due after 1 but within 5 years 118,113 117,814 Due after 5 but within 10 years 32,452 32,770 Due after 10 years 4,504 4,568 169,357 169,483 Mortgage backed securities 335,152 334,085 Total debt securities $504,509 $503,568 37 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 5--Securities Held to Maturity (Continued) There were no sales of securities held to maturity in 1995. Proceeds from the sales of securities held to maturity were $7,476 in 1994. Gross gains of $42 and gross losses of $26 were recognized during 1994. Most of these securities were called and sold within three months of the call date. One security was sold because of a significant deterioration of the issuer's creditworthiness. Proceeds from the sale of securities held to maturity were $99,479 during 1993. Gross gains of $3,545 and gross losses of $17 were realized on those sales during 1993. Securities held to maturity and available for sale with a book value of $297,540 and $336,273 were pledged at December 31, 1995 and 1994, respectively, to secure public deposits and for other purposes required or permitted by law. NOTE 6--Loans (all domestic) Loans at year end were divided among these general categories: December 31, 1995 1994 Commercial, financial, agricultural and other $ 192,530 $ 180,373 Real estate loans: Construction and land development 22,969 23,131 1-4 Family dwellings 616,661 587,734 Other real estate loans 293,095 268,417 Loans to individuals for household, family and other personal expenditures 381,729 332,167 Leases, net of unearned income 24,190 30,498 Subtotal 1,531,174 1,422,320 Unearned income (43,632) (44,526) Total loans and leases $1,487,542 $1,377,794 Most of the Corporation's business activity was with customers located within Pennsylvania. The portfolio is well diversified, and as of December 31, 1995 and 1994, there were no significant concentrations of credit. The Federal Home Loan Bank had a security interest in qualifying residential mortgage loans with an aggregate estimated fair value of $15,155 at December 31, 1995 as collateral for short-term borrowings by the Corporation's banking subsidiaries. NOTE 7--Reserve for Possible Loan Losses Description of changes: 1995 1994 1993 Reserve balance at January 1 $17,337 $16,483 $15,828 Additions: Recoveries of previously charged off loans 860 1,134 1,588 Provision charged to operating expense 4,125 2,896 2,920 Deductions: Loans charged off 4,170 3,176 3,853 Reserve balance at December 31 $18,152 $17,337 $16,483 38 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 7--Reserve for Possible Loan Losses (Continued) As of December 31, 1995, the Corporation had a recorded investment in impaired loans of $8,222 with an average balance of $8,192 for the year. An allocation of the reserve for possible loan losses in the amount of $591 relates to $3,858 of the impaired loans pursuant to FAS No. 118. Impaired loans totalling $4,364 have no reserve allocation. Income recorded on impaired loans during 1995 was $161. NOTE 8--Financial Instruments with Off-Balance-Sheet Risk The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amount of those instruments reflects the extent of involvement the Corporation has in particular classes of financial instruments. As of December 31, 1995 and 1994 the Corporation did not own or trade any other financial instruments with significant off-balance-sheet risk including derivatives such as futures, forwards, interest rate swaps, option contracts and the like, although such instruments may be appropriate to use in the future to manage interest rate risk. The Corporation's exposure to credit loss in the event of nonperformance by the other party of the financial instrument for commitments to extend credit, standby letters of credit and commercial letters of credit written is represented by the contract or notional amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The following table identifies the notional amount of those instruments at December 31, 1995 and 1994. 1995 1994 Financial instruments whose contract amounts represent credit risk: Commitments to extend credit $236,929 $212,751 Standby letters of credit $ 8,027 $ 18,505 Commercial letters of credit $ 55 $ 65 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management's credit evaluation of the counter-party. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Standby letters of credit and commercial letters of credit written are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. 39 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 9--Premises and Equipment Premises and equipment are described as follows: Estimated Useful Life 1995 1994 Land Indefinite $ 4,373 $ 4,453 Buildings and improvements 19 - 40 Years 28,781 28,818 Leasehold improvements 5 - 40 Years 4,567 4,429 Furniture and equipment 3 - 7 Years 27,232 24,988 Subtotal 64,953 62,688 Less accumulated depreciation and amortization 35,518 33,492 Total premises and equipment $29,435 $29,196 Depreciation and amortization related to premises and equipment was $3,536 in 1995, $3,499 and $3,393 in 1994 and 1993, respectively. In March 1995, the Financial Accounting Standards Board issued Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed of". 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 change in 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. The Corporation is required to adopt FAS No. 121 in its fiscal year beginning January 1, 1996. Adoption of this statement is not expected to have a material impact on the Corporation's financial condition or results of operations. NOTE 10--Interest-Bearing Deposits Components of interest-bearing deposits at December 31 were as follows: 1995 1994 NOW and Super NOW accounts $ 216,811 $ 223,915 Savings and MMDA accounts 463,492 463,906 Time deposits 1,081,518 994,067 Total interest-bearing deposits $1,761,821 $1,681,888 Included in time deposits at December 31 were certificates of deposit in denominations of $100 or more maturing as follows: 1995 1994 3 months or less $ 40,377 $ 37,968 3 to 6 months 26,331 10,191 6 to 12 months 32,357 17,885 Over 12 months 68,241 61,841 Total $167,306 $127,885 Interest expense related to $100 or greater certificates of deposit amounted to $9,643 in 1995, $6,148 in 1994, and $5,750 in 1993. 40 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 11--Short-term Borrowings Short-term borrowings at December 31 were as follows:
1995 1994 Ending Average Average Ending Average Average Balance Balance Rate Balance Balance Rate Federal funds purchased $ 31,235 $ 37,261 6.06% $ 66,175 $ 54,222 4.39% Borrowings from FHLB 12,198 26,369 6.00 66,944 57,488 4.60 Securities sold under agreements to repurchase 75,109 69,054 5.29 61,564 49,359 4.18 Treasury, tax and loan note option 2,232 8,790 5.89 7,023 7,860 3.88 Total $120,774 $141,474 5.66% $201,706 $168,929 4.38% Maximum total at any month-end $212,342 $201,706
Interest expense on short-term borrowings for the years ended December 31 is detailed below: 1995 1994 1993 Federal funds purchased $2,259 $2,381 $ 715 Borrowings from FHLB 1,583 2,646 753 Securities sold under agreements to repurchase 3,653 2,062 1,918 Treasury, tax and loan note option 518 305 255 Total interest on short-term borrowings $8,013 $7,394 $3,641 NOTE 12--Long-Term Debt Long-term debt at December 31, follows:
1995 1994 Amount Rate Amount Rate Bank subordinated notes due September, 1997 $ 716 8.38% $ 716 8.38% ESOP loan due September, 1997 1,250 80% of Prime 1,964 80% of Prime ESOP loan due March, 2001 1,875 Prime 2,232 Prime ESOP loan due March, 2004 1,420 Prime 1,000 Prime Bank loan due December, 1997 -0- 1,500 Prime Mortgage note due October, 2003 -0- 184 6.26% Total long-term debt $5,261 $7,596
At December 31, 1995 the ESOP loan due March, 2004 had an unused line of credit in the amount of $1,080 which expires in June 1997. All subordinated notes are unsecured and equally subordinated in right of payment to depositors and other creditors. The notes are redeemable at 102% of principal until maturity, at the bank's option. The subordinated notes do not provide for sinking fund obligations. Scheduled loan payments and subordinated note maturities are summarized below: 1996 1997 1998 1999 2000 Thereafter Loan payments $1,071 $ 974 $571 $571 $571 $787 Note maturities -0- 716 -0- -0- -0- -0- Total $1,071 $1,690 $571 $571 $571 $787 41 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands except per share data) NOTE 13--Common Share Commitments At December 31, 1995 the Corporation had 100,000,000 common shares authorized and 22,371,626 shares outstanding. Outstanding shares were reduced by 65,002 shares of treasury stock at December 31, 1995. The Corporation may be required to issue additional shares to satisfy common share purchases related to the employee stock ownership plan described in NOTE 15. During 1995 and 1994, 111,522 and 5,900 shares of treasury stock were acquired at an average price per share of $14.19 and $13.88 respectively, for the purpose of funding stock options upon exercise. Treasury shares consisting of 52,420 were reissued during 1995 upon exercise of various stock option plans assumed by the Corporation in the merger transactions with Reliable and United. In March of 1994, 18,131 shares of treasury stock held by Reliable were reissued to fund stock options exercised. The remaining 80,077 treasury shares held by Reliable were cancelled at the merger date. NOTE 14--Income Taxes As discussed in NOTE 1, effective January 1, 1993 the Corporation adopted FAS No. 109. The adoption of this statement resulted in a cumulative benefit of $865 in 1993. This benefit was primarily due to lower tax rates in the year that FAS No. 109 was adopted compared to the tax rates in the prior years when the timing differences were recognized. The income tax provision consists of: 1995 1994 1993 Current tax provision for income exclusive of securities transactions: Federal $11,309 $10,599 $11,228 State 15 455 224 Securities transactions (213) 2,323 1,308 Total current tax provision 11,111 13,377 12,760 Deferred tax provision (benefit) 863 849 (316) Total tax provision $11,974 $14,226 $12,444 42 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 14--Income Taxes (Continued) Temporary differences between financial statement carrying amounts and tax bases of assets and liabilities that represent significant portions of the deferred tax assets (liabilities) at December 31, 1995 and 1994 were as follows: 1995 1994 Deferred tax assets: Reserve for possible loan losses $ 5,491 $ 4,909 Alternative minimum tax carryforward -0- 591 Unrealized loss on securities available for sale -0- 9,047 Other 332 352 Deferred tax liabilities: Accumulated accretion of bond discount (365) (277) Unrealized gain on securities available for sale (275) -0- Lease financing deduction (2,784) (3,429) Loan origination fees and costs (360) (154) Accumulated depreciation (333) (397) Basis difference in assets acquired (1,635) (2,065) Other (120) (167) Net deferred tax asset (liability) $ (49) $ 8,410 Management does not feel a need to establish a valuation allowance against the deferred tax asset because of the Corporation's ability to recover these future deductions through carrybacks. The total tax provision for financial reporting purposes differs from the amount computed by applying the statutory income tax rate to income before income taxes. The differences are as follows:
1995 1994 1993 % of % of % of Pretax Pretax Pretax Amount Income Amount Income Amount Income Tax at statutory rate $13,125 35.0 $15,037 35.0 $13,997 35.0 Increase (decrease) resulting from: Effect of nontaxable interest (1,408) (3.8) (1,643) (3.8) (1,922) (4.8) Merger expenses -0- 0.0 590 1.4 59 0.1 State income taxes 13 0.0 566 1.3 204 0.5 Other 244 0.7 (324) (0.8) 106 0.3 Total tax provision $11,974 31.9 $14,226 33.1 $12,444 31.1
The Corporation has not recognized a deferred tax liability for differences resulting from the bad debt reserve for tax purposes prior to January 1, 1988 for Reliable Savings Bank, PaSA, its savings bank subsidiary. Should amounts previously claimed as bad debt deductions for Reliable be used for any purpose other than to absorb bad debts or if the separate savings bank subsidiary is eliminated (which is not currently anticipated), a tax liability of approximately $1,369 would be incurred, using tax rates in effect as of December 31, 1995. 43 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 15--Retirement Plans All employees with at least one year of service are eligible to participate in the employee stock ownership plan ("ESOP"). Contributions to the plan are determined by the board of directors, and are based upon a prescribed percentage of the annual compensation of all participants. The ESOP acquired 36,880 shares and 110,225 shares of the Corporation's common stock in 1995 and 1994, respectively, at a corresponding cost of $500 and $1,730, which the Corporation borrowed and concurrently loaned these amounts to the ESOP. These amounts represent leveraged and unallocated shares, and accordingly have been recorded as long-term debt and the offset as a reduction of the common shareholders' equity. Compensation cost related to the plan was $1,908 in 1995, $1,070 in 1994 and $622 in 1993. (See NOTE 16). The Corporation also has a savings plan pursuant to the provisions of section 401(k) of the Internal Revenue Code. Under the terms of the plan, each participant will receive an automatic employer contribution to the plan in an amount equal to 3% of compensation. Each participating employee may contribute up to 5% of compensation to the plan which is matched by the employer's contribution equal to 60% of the employee's contribution. Beginning January 1, 1996 the employer's matching contribution was increased to 80% of the employees contribution. The 401(k) plan expense was $1,294 in 1995, $1,137 in 1994 and $1,181 in 1993. NOTE 16--Unearned ESOP Shares The Corporation had borrowed amounts which were concurrently loaned to the First Commonwealth Financial Corporation Employee Stock Ownership Plan Trust ("ESOP") on the same terms. The combined balances of the ESOP related loans were $4,545 at December 31, 1995 and $5,196 at December 31, 1994. The loans have been recorded as long-term debt on the Corporation's consolidated balance sheets. A like amount of unearned ESOP shares was recorded as a reduction of common shareholders' equity. Unearned ESOP shares, included as a component of shareholders' equity, represents the Corporation's prepayment of future compensation expense. The shares acquired by the ESOP are held in a suspense account and will be released to the ESOP for allocation to the plan participants as the loan is reduced. Repayment of the loans will occur over a nine year period from contributions to the ESOP by the Corporation and dividends on unallocated ESOP shares. For 1995 a total of 103,714 shares were allocated to participants resulting in 329,068 shares remaining in suspense at December 31, 1995. Allocated shares included 84,537 old shares and 19,177 new shares, while the remaining suspense at December 31, 1995 were 194,459 old shares and 134,609 new shares. The fair market value of the 134,609 and 116,906 new shares remaining in suspense was approximately $2,356 and $1,578 at December 31, 1995 and 1994 respectively. Interest on ESOP loans was $434 in 1995, $312 in 1994 and $245 in 1993. During 1995 dividends on unallocated shares in the amount of $285 were used for debt service while all dividends on allocated shares were allocated to the participants. Dividends on common shares held in the ESOP used for debt service were $478 in 1994 and $417 in 1993. 44 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 17--Commitments and Contingent Liabilities There are 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 any material adverse effect on the consolidated operations or financial position of the Corporation and its subsidiaries. NOTE 18--Related Party Transactions Some of the Corporation's or its subsidiaries' directors, executive officers, principal shareholders and their related interests, had transactions with the subsidiary banks in the ordinary course of business. All loans and commitments to loans in such transactions were made on substantially the same terms, including collateral and interest rates, as those prevailing at the time for comparable transactions. In the opinion of management, these transactions do not involve more than the normal risk of collectibility nor do they present other unfavorable features. It is anticipated that further such extensions of credit will be made in the future. The following is an analysis of loans to those parties whose aggregate loan balances exceeded $60 during 1995. Balances December 31, 1994 $24,345 Advances 13,285 Repayments (17,618) Other (10,727) Balances December 31, 1995 $ 9,285 "Other" primarily reflects the change in those classified as a "related party" as a result of mergers, resignations and retirements. During 1995 the most significant portion of "other" resulted from the merger of eight commercial bank subsidiaries described in NOTE 1 thereby reducing the number of persons classified as a related party. Also included in "other" are two loans to a director which were included in the December 31, 1994 balances and which were past due and carried on a nonaccrual status during 1994 and 1995 due to cashflow deficiencies. The original loans were made on substantially the same terms as those prevailing at the time for comparable transactions. These loans remain outstanding at December 31, 1995 but are no longer classified as related party loans as a result of the director's resignation in March, 1995. NOTE 19--Regulatory Restrictions The amount of funds available to the parent from its subsidiary banks is limited by restrictions imposed on all financial institutions by banking regulators. During 1995, dividends from subsidiary banks were restricted not to exceed $69,879. These restrictions have not had, and are not expected to have, a significant impact on the Corporation's ability to meet its cash obligations. The Corporation is subject to capital adequacy guidelines of various federal regulatory agencies. At December 31, 1995 the Corporation and its banking subsidiaries are considered well capitalized as defined by the Federal Deposit Insurance Corporation Improvement Act of 1991. 45 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 20--Jointly-Owned Company Investment in Commonwealth Trust Credit Life Insurance Company ("Commonwealth Trust"), a jointly-owned credit life reinsurance company in which the Corporation has a 50% interest in the voting common stock, is carried at cost, adjusted for the Corporation's proportionate share of the earnings. Dividends, if any, reduce the basis of the investment. Commonwealth Trust has been in operation since June of 1989. The Corporation's net investment in Commonwealth Trust at December 31, 1995 was $1,768 and income from its investment was $322 during 1995. NOTE 21--Condensed Financial Information of First Commonwealth Financial Corporation (parent company only) Balance Sheets December 31, 1995 1994 Assets Cash $ 7,730 $ 2,120 Securities available for sale 3,918 -0- Loans and receivables from affiliates 518 275 Investment in subsidiaries 239,834 224,522 Investment in jointly-owned company 1,768 1,446 Premises and equipment 2,835 2,283 Dividends receivable from subsidiaries 4,443 4,638 Other assets 1,164 1,575 Total assets $262,210 $236,859 Liabilities and Shareholders' Equity Accrued expenses and other liabilities $ 1,362 $ 1,439 Dividends payable 4,027 3,589 Loans payable 4,545 6,696 Shareholders' equity 252,276 225,135 Total liabilities and shareholders' equity $262,210 $236,859 Statements of Income Years Ended December 31, 1995 1994 1993 Interest and dividends $ 53 $ -0- $ -0- Dividends from subsidiaries 31,194 17,260 13,490 Operating expenses (8,929) (7,561) (5,598) Income before taxes and equity in undistributed earnings of subsidiaries 22,318 9,699 7,892 Applicable income tax benefits 2,781 2,673 1,782 Income before equity in undistributed earnings of subsidiaries 25,099 12,372 9,674 Equity in undistributed earnings of subsidiaries 427 16,364 18,736 Net income $25,526 $28,736 $28,410 46 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 21--Condensed Financial Information of First Commonwealth Financial Corporation (parent company only) (Continued) Statements of Cash Flows Years Ended December 31, 1995 1994 1993 Operating Activities Net income $ 25,526 $ 28,736 $ 28,410 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,223 1,001 1,190 Increase in prepaid income taxes (156) (112) (262) Undistributed equity in subsidiaries (427) (16,364) (18,736) Other - net 224 (935) (11) Net cash provided by operating activities 26,390 12,326 10,591 Investing Activities Purchases of securities available for sale (2,133) -0- -0- Net change in loans to affiliated parties (281) -0- -0- Purchases of premises and equipment (931) (1,372) (499) Acquisition and additional investment in subsidiary, net of cash received -0- 186 (1,000) Net cash used by investing activities (3,345) (1,186) (1,499) Financing Activities Repayment of long-term debt (1,500) (500) (500) Tax benefit of ESOP dividend -0- 81 84 Discount on dividend reinvestment plan purchases (342) (212) (159) Treasury stock acquired (1,583) (82) -0- Treasury stock reissued 316 -0- -0- Cash dividends paid (14,326) (10,878) (8,571) Net cash used by financing activities (17,435) (11,591) (9,146) Net increase (decrease) in cash 5,610 (451) (54) Cash at beginning of year 2,120 2,571 2,625 Cash at end of year $ 7,730 $ 2,120 $ 2,571 47 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 21--Condensed Financial Information of First Commonwealth Financial Corporation (parent company only) (Continued) Supplemental schedule of noncash investing and financing activities The Corporation borrowed $500 in 1995, $1,730 in 1994 and $250 in 1993 and concurrently loaned these amounts to the ESOP on identical terms. The loans were recorded as long-term debt and the offset was recorded as a reduction of the common shareholders' equity. Loan payments in the amount of $1,151 in 1995, $983 in 1994 and $714 in 1993 were made by the ESOP thereby reducing the outstanding amount related to unearned ESOP shares to $4,545 at December 31, 1995. Dividends from subsidiaries for 1995 include a special dividend in the amount of $13,674 received from Reliable Financial Corporation, a wholly- owned subsidiary. After distribution of the special dividend, which was within guidelines established by the banking regulators, Reliable remained classified as a well capitalized institution. Included in this special dividend was a dividend-in-kind in the amount of $1,259 which was received in the form of securities available for sale. This amount was recorded as a reduction of investment in subsidiary and is included in securities available for sale at December 31, 1995. NOTE 22--Fair Values of Financial Instruments Below are various estimated fair values at December 31, 1995 and 1994, as required by Statement of Financial Accounting Standards No. 107 ("FAS No. 107"). Such information, which pertains to the Corporation's financial instruments, is based on the requirements set forth in FAS No. 107 and does not purport to represent the aggregate net fair value of the Corporation. It is the Corporation's general practice and intent to hold its financial instruments to maturity, except for certain securities designated as securities available for sale, and not to engage in trading activities. Many of the financial instruments lack an available trading market, as characterized by a willing buyer and seller engaging in an exchange transaction. Therefore, the Corporation had to use significant estimations and present value calculations to prepare this disclosure. Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Also, management is concerned that there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and the methodologies in absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values. The following methods and assumptions were used by the Corporation in estimating financial instrument fair values: Cash and short-term instruments: The balance sheet carrying amounts for cash and short-term instruments approximate the estimated fair values of such assets. Securities: Fair values for securities held to maturity and securities available for sale are based on quoted market prices, if available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The carrying value of nonmarketable equity securities, such as Federal Reserve Bank stock and Federal Home Loan Bank stock, is considered a reasonable estimate of fair value. 48 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994 and 1993 (Dollar Amounts in Thousands) NOTE 22--Fair Values of Financial Instruments (Continued) Loans receivable: Fair values of variable rate loans subject to frequent repricing and which entail no significant credit risk are based on the carrying values. The estimated fair values of other loans are estimated by discounting the future cash flows using interest rates currently offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest is considered a reasonable estimate of fair value. Off-balance-sheet instruments: Many of the Corporation's off-balance-sheet instruments, primarily loan commitments and standby letters of credit, are expected to expire without being drawn upon, therefore the commitment amounts do not necessarily represent future cash requirements. Management has determined that due to the uncertainties of cash flows and difficulty in predicting the timing of such cash flows, fair values were not estimated for these instruments. Deposit liabilities: For deposits which are payable on demand at the reporting date, representing all deposits other than time deposits, management estimates that the carrying value of such deposits is a reasonable estimate of fair value. The carrying amounts of variable rate time deposit accounts and certificates of deposit approximate their fair values at the report date. Fair values of fixed rate time deposits are estimated by discounting the future cash flows using interest rates currently being offered and a schedule of aggregated expected maturities. The carrying amount of accrued interest approximates its fair value. Short-term borrowings: The carrying amounts of short-term borrowings such as Federal funds purchased, securities sold under agreements to repurchase, borrowings from the Federal Home Loan Bank and treasury, tax and loan notes approximate their fair values. Long-term debt: The carrying amounts of variable rate debt approximate their fair values at the report date. Fair values of fixed rate debt are estimated by discounting the future cash flows using the Corporation's estimated incremental borrowing rate for similar types of borrowing arrangements. The following table presents carrying amounts and estimated fair values of the Corporation's financial instruments at December 31, 1995 and 1994. 1995 1994 Estimated Estimated Carrying Fair Carrying Fair Amount Value Amount Value Financial assets Cash and due from banks $ 62,381 $ 62,381 $ 66,055 $ 66,055 Interest-bearing deposits with banks 8,288 8,288 13,686 13,686 Federal funds sold 4,800 4,800 -0- -0- Securities available for sale 244,193 244,193 443,189 443,189 Investments held to maturity 504,509 503,568 370,498 348,074 Loans, net of reserve 1,469,390 1,509,057 1,360,457 1,377,391 Financial liabilities Deposits 1,962,760 1,972,313 1,881,060 1,868,375 Short-term borrowings 120,774 120,774 201,706 201,706 Long-term debt 5,261 5,296 7,596 7,619 49 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Shareholders First Commonwealth Financial Corporation We have audited the consolidated balance sheets of First Commonwealth Financial Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the two years in the period then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of First Commonwealth Financial Corporation and subsidiaries for the year ended December 31, 1993, were audited by other auditors whose report dated March 2, 1994, expressed an unqualified opinion on those statements prior to restatement for the transactions accounted for as poolings of interests as described in Note 2 to the financial statements. The consolidated financial statements for the year ended December 31, 1993 have been restated to reflect the poolings of interests with Reliable Financial Corporation and United National Bancorporation as described in Note 2 to the consolidated financial statements. We have audited the combination of the accompanying consolidated financial statements for 1993 after restatement for the 1994 poolings of interests. In our opinion, such consolidated statements have been properly combined on the basis described in Note 2. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 1995 and 1994 financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Commonwealth Financial Corporation and subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the two years in the period then ended in conformity with generally accepted accounting principles. As discussed in Notes 1 and 14, to the consolidated financial statements, the Corporation changed its method of accounting for investments and income taxes during 1993. /S/GRANT THORNTON LLP Pittsburgh, Pennsylvania January 25, 1996 50 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data INDEPENDENT AUDITOR'S REPORT Board of Directors and Shareholders of First Commonwealth Financial Corporation Indiana, Pennsylvania We have audited the consolidated balance sheet of First Commonwealth Financial Corporation and subsidiaries as of December 31, 1993, and the related consolidated statements of income, changes in shareholders' equity and cash flows for the year then ended prior to restatement for the transactions accounted for as poolings of interests. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Commonwealth Financial Corporation and subsidiaries as of December 31, 1993, and the results of their operations and cash flows for the year then ended prior to restatement for the transactions accounted for as poolings of interests, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Corporation changed its method of accounting for income taxes and investments. /S/JARRETT STOKES & KELLY Indiana, Pennsylvania March 2, 1994 51 FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES ITEM 8. Financial Statements and Supplementary Data Quarterly Summary of Financial Data - Unaudited (Dollar Amounts in Thousands, except per share data) The unaudited quarterly results of operations for the years ended December 31, 1995 and 1994 are as follows. All amounts have been restated to reflect poolings of interests.
1995 First Second Third Fourth Quarter Quarter Quarter Quarter Interest income.............................. $42,918 $43,819 $44,244 $44,720 Interest expense............................. 19,948 20,665 20,594 21,211 Net interest income..................... 22,970 23,154 23,650 23,509 Provision for possible loan losses........... 793 837 815 1,680 Net interest income after provision for possible loan losses....................... 22,177 22,317 22,835 21,829 Securities gains (losses).................... 24 (628) -0- 1 Other operating income....................... 2,517 2,909 2,730 2,851 Other operating expenses..................... 15,417 15,705 14,381 16,559 Income before taxes..................... 9,301 8,893 11,184 8,122 Applicable income taxes...................... 3,011 2,898 3,729 2,336 Net income.............................. $ 6,290 $ 5,995 $ 7,455 $ 5,786 Earnings per share........................... $ 0.29 $ 0.27 $ 0.34 $ 0.26
1994 First Second Third Fourth Quarter Quarter Quarter Quarter Interest income.............................. $37,825 $39,091 $40,675 $42,053 Interest expense............................. 16,417 16,657 17,444 18,584 Net interest income..................... 21,408 22,434 23,231 23,469 Provision for possible loan losses........... 688 722 766 720 Net interest income after provision for possible loan losses....................... 20,720 21,712 22,465 22,749 Securities gains (losses).................... 466 1,333 (71) 3,808 Other operating income....................... 2,867 2,617 2,683 2,468 Other operating expenses..................... 14,991 15,309 15,737 14,818 Income before taxes..................... 9,062 10,353 9,340 14,207 Applicable income taxes...................... 2,863 3,553 2,999 4,811 Net income.............................. $ 6,199 $ 6,800 $ 6,341 $ 9,396 Earnings per share........................... $ 0.28 $ 0.30 $ 0.28 $ 0.42
52 FIRST COMMONWEALTH FINANCIAL CORPORATION ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information appearing in the definitive Proxy Statement related to the annual meeting of security holders to be held April 20, 1996 is incorporated herein by reference in response to the listing of directors. The table below lists the current executive officers of the Corporation. Name Age Positions Held During the Past Five Years E. James Trimarchi 73 Chairman of the Board of the Corporation, Chairman of the Board of FCTC, CSC, and FCB; Director of NBOC, CTCLIC, and New Mexico Banquest Investors Corp.; Former President and Chief Executive Officer of the Corporation Joseph E. O'Dell 50 President and Chief Executive Officer of the Corporation, President and Chief Executive Officer of FCB, Director of FCB and FCTC, Vice Chairman of the Board of CSC; Former Senior Executive Vice President and Chief Operating Officer of the Corporation Gerard M. Thomchick 40 Senior Executive Vice President and Chief Operating Officer of the Corporation; President, Chief Executive Officer and Director of CTCLIC; Director of FCB, Unitas and FCTC David R. Tomb, Jr. 64 Senior Vice President, Secretary and Treasurer of the Corporation; Secretary and Cashier of FCB; Director of NBOC, PBWPA, FCB, CSC, FCTC and CTCLIC John J. Dolan 39 Senior Vice President, Comptroller and Chief Financial Officer of the Corporation; Comptroller and Chief Financial Officer of FCB; Chief Financial Officer, Comptroller of CTCLIC;, Treasurer and Assistant Secretary of FCTC; Director of Peoples George E. Dash 45 Senior Vice President, Sales and Marketing of the Corporation; Director of Central Johnston A. Glass 46 President of NBOC, Director of the Corporation William R. Jarrett 61 Senior Vice President of the Corporation, Director of PBWPA and RSB, Former managing partner of Jarrett Stokes & Co. Certified Public Accountants, until his employment by the Corporation on April 15, 1994. R. John Previte 46 Senior Vice President, Investments of the Corporation; Director of Cenwest 53 FIRST COMMONWEALTH FINANCIAL CORPORATION ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued) Each of the officers identified above has held the position indicated above or other executive positions with the same entity (or a subsidiary thereof) for at least the past five years except where noted. Executive officers of the Corporation serve at the pleasure of the Board of Directors of the Corporation and for a term of office extending through the election and qualification of their successors. ITEM 11 - MANAGEMENT RENUMERATION Information appearing in the definitive Proxy Statement related to the annual meeting of security holders to be held April 20, 1996 is incorporated herein by reference in response to this item. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information appearing in the definitive Proxy Statement related to the annual meeting of security holders to be held April 20, 1996 is incorporated herein by reference in response to this item. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information appearing in the definitive Proxy Statement related to the annual meeting of security holders to be held April 20, 1996 is incorporated herein by reference in response to this item. 54 FIRST COMMONWEALTH FINANCIAL CORPORATION PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K (A) Documents Filed as Part of this Report 1) Financial Statements All financial statements of the registrant as set forth under Item 8 of this Report on Form 10-K. 2) Financial Statement Schedules Schedule Number Description Page I Indebtedness to Related Parties N/A II Guarantees of Securities of Other Issuers N/A Page Number or Exhibit Incorporated by 3) Number Description Reference to 3.1 Articles of Incorporation Exhibit 3(i) to the Corporation's quarterly report on Form 10Q for the quarter ended March 31, 1994 3.2 By-Laws of Registrant Exhibit 3.2 to Form S-4 filed October 15, 1993 10.1 Employment Contract Exhibit 10.2 to Form S-4 Sumner E. Brumbaugh Filed October 15, 1993 10.2 Employment Contract Exhibit 10.3 to Form S-4 Robert F. Koslow filed October 15, 1993 10.3 Employment Contract Exhibit 10.4 to Form S-4 Robert C. Williams filed June 17, 1994 10.4 Change in Control Agreement dated October 27, 1995 Joseph E. O'Dell 10.5 Change in Control Agreement dated October 27, 1995 Gerard M. Thomchick 10.6 Change in Control Agreement dated October 30, 1995, entered into between First Commonwealth Financial Corporation and John J. Dolan, together with a schedule listing substantially identical Change in Control Agreements with the following individuals: George E. Dash, William R. Jarrett, R. John Previte, Kenneth D. Brougher, David L. Dawson, Johnston A. Glass, Rosemary Krolick, William Miksich, Domenic P. Rocco, Timothy P. Sissler, Ronald R. Stacy, Robert C. Wagner and C. Dean Wingard. 21.1 Subsidiaries of the Registrant 55 FIRST COMMONWEALTH FINANCIAL CORPORATION ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K PART IV (Continued) 23.1 Consent of Grant Thornton LLP Certified Public Accountants 23.2 Consent of Jarrett Stokes & Kelly Certified Public Accountants 24.1 Power of Attorney (B) Report on Form 8-K (1) Form 8-K dated December 27, 1995 reporting the Corporation's intent to buy back shares of its common stock to be used to cover outstanding stock options. 56 FIRST COMMONWEALTH FINANCIAL CORPORATION SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, in Indiana, Pennsylvania, on the 21st day of March 1996. FIRST COMMONWEALTH FINANCIAL CORPORATION (Registrant) /S/JOSEPH E. O'DELL Joseph E. O'Dell, President and Chief Executive Officer 57 EX-10 2 CHANGE IN CONTROL-JOSEPH E. O'DELL FIRST COMMONWEALTH FINANCIAL CORPORATION EXHIBIT 10.4 - Change in Control Agreement - Joseph E. O'Dell AGREEMENT FOR SEVERANCE PAYMENTS IN THE EVENT OF TERMINATION OF EMPLOYMENT UNDER CERTAIN CIRCUMSTANCES THIS AGREEMENT, by and between First Commonwealth Financial Corporation, a bank holding company organized and existing under the laws of the Commonwealth of Pennsylvania and with its principal place of business in Indiana, Pennsylvania (the "Employer") and Joseph E. O'Dell of White Township, Indiana County, Pennsylvania (the "Executive") made this 27th day of October, 1995. WITNESSETH WHEREAS, the Executive is presently employed by the Employer as its President and Chief Executive Officer; WHEREAS, the Employer wishes to induce the Executive to continue as its President and Chief Executive Officer and, accordingly, to provide certain employment security to said Executive in the event of a "change in control" (as hereinafter defined); WHEREAS, the Employer believes that it is in the best interest of its shareholders for the Executive to continue in his position on an objective and impartial basis and without distraction or conflict of interest as a result of a possible, or actual "change in control" (as hereinafter defined); and WHEREAS, in consideration, inter alia, of this Agreement the Executive is willing to continue as the Employer's President and Chief Executive Officer; NOW THEREFORE, IN CONSIDERATION OF THE EXECUTIVE CONTINUING AS THE PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE EMPLOYER AND OF THE MUTUAL PREMISES HEREIN CONTAINED, THE EXECUTIVE AND THE EMPLOYER, INTENDING TO BE LEGALLY BOUND, HEREBY AGREE AS FOLLOWS, TO WIT; ARTICLE I DEFINITIONS 1. A "Change in Control" for the purpose of this Agreement, shall be deemed to have occurred if, at any time, any person or group of persons acting in concert (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, and the regulations of the Securities and Exchange Commission promulgated thereunder) shall acquire legal or beneficial ownership interest, or voting rights, in twenty-five percent (25%) or more of the common voting stock of First Commonwealth Financial Corporation. 2. A "Triggering Event" for the purpose of this Agreement shall be deemed to have occurred if, on or after the occurrence of a Change in Control, any of the following shall occur, viz: (a) Within three (3) years from the date on which the Change In Control occurred, the Employer shall terminate the employment of the Executive, other than in the case of a Termination For Cause, as herein defined; (b) Within three (3) years from the date on which the Change In Control occurred, the Employer shall reduce the Executive's title, responsibilities, power or authority in comparison with his title, responsibilities, power or authority at the time of the Change In Control; (c) Within three (3) years from the date on which the Change In Control occurred, the Employer shall assign the Executive duties which are inconsistent with the duties assigned to the Executive on the date on which the Change In Control occurred and which duties the Employer persists in assigning to the Executive despite the prior written objection of the Executive; FIRST COMMONWEALTH FINANCIAL CORPORATION EXHIBIT 10.4 - Change in Control Agreement - Joseph E. O'Dell (Continued) (d) Within three (3) years from the date in which the Change In Control occurred, the Employer shall reduce the Executive's base compensation, his group health, life, disability or other insurance programs (including any such benefits provided to the Executive's family), his pension, retirement or profit-sharing benefits or any benefits provided by the Employer's Employee Stock Ownership Plan, or any substitute therefor, or shall exclude him from any plan, program or arrangement in which the other executive officers of the Employer are included. 3. A "Termination For Cause" for the purpose of this Agreement shall be deemed to have occurred, if, and only if, the Executive shall have committed a felony under the laws of the United States of America, or of any state or territory thereof, and shall have been convicted of the same, or shall have pled guilty or nolo contendere with respect to said charge, and the commission of said felony resulted in, or was intended to result in, a loss (monetary or otherwise) to the Employer or its clients, customers, directors, officers or employees. ARTICLE II SEVERANCE PAYMENT Upon the occurrence of a Triggering Event, the Employer shall pay to the Executive a severance benefit which shall be in addition to any other compensation or remuneration to which the Executive is, or shall become, entitled to receive from the Employer. Each severance payment shall be paid by the Employer to the Executive on the first day of each calendar month commencing on the first day of the month next following the month in which the Triggering Event occurred, and be payable to the Executive or his beneficiary ( as hereinafter provided) for thirty-five (35) consecutive months thereafter, so that a total of thirty-six (36) consecutive monthly payments shall be made. The amount of each such payment shall be equal to one-twelfth (1/12) of the Executive's annual base salary on the date of the Change In Control. In addition thereto, the Employer shall, at its expense, provide the Executive, and his family, with life, health, disability and accidental death and dismemberment insurance in an amount not less than that provided on the date on which the Change In Control occurred, for the period during which the monthly payments provided above are to be made. ARTICLE III LIMITATION ON PAYMENT OF BENEFITS Notwithstanding anything to the contrary herein contained, in no event shall any amount of severance payments be paid to the extent that such amount constitutes "excess parachute payments" to a "disqualified individual," as such terms are defined by Section 280G of the Internal Revenue Code of 1986, as amended (26 USC 280G) and the regulations of the Secretary of the Treasury or his delegate issued pursuant thereto. ARTICLE IV PAYMENTS ON DEATH If the Executive shall die after the occurrence of a Triggering Event, but prior to the payment of all of the monthly severance payments required by Article II hereof, then all remaining severance payments shall be paid to the beneficiary herein provided at the same time, and in the same amount, as would have been payable to the Executive (in accordance with Article II hereof) had he survived. For this purpose, the Executive's beneficiary shall mean the person or persons designated by the Executive in a notice to the Employer, provided, however than any such designation shall be revocable during the lifetime of the Executive, and in the event that the Executive shall have given more than one such notice during his lifetime, the beneficiary designated in the last such notice shall govern. If the Executive shall not have given such a notice prior to his death, the beneficiary shall be deemed to be the same person that the Executive designated with respect to his group life insurance program maintained by the Employer. FIRST COMMONWEALTH FINANCIAL CORPORATION EXHIBIT 10.4 - Change in Control Agreement - Joseph E. O'Dell (Continued) ARTICLE V VOLUNTARY TERMINATION OF EMPLOYMENT If the Executive shall resign, or otherwise voluntarily terminate, his employment with the Employer within a one (1) year period commencing on the date that a Change In Control occurred, and on the date of such resignation, or other voluntary termination of employment, he has not yet attained the earliest normal retirement date under the provisions of the Employer's Employee Stock Ownership Plan, Profit-Sharing Plan, or other qualified pension or profit-sharing plan of the Employer, then the Employer shall pay to the Executive a severance benefit which shall commence on the first day of the month following the date of such resignation or other termination of employment and shall be payable thereafter for the same period, in the same amount and under the same conditions as if such payments are made following a Triggering Event in accordance with Article II hereof. ARTICLE VI COMPETITIVE EMPLOYMENT If during the period that the Executive is receiving severance payments as herein provided, he shall become an officer, director, employee or consultant to a bank or bank holding company which provides (or whose subsidiaries or affiliates provide) trust, loan or retail banking facilities in the same county as such facilities are provided by any subsidiary or affiliate of the Employer, and which is in direct competition with the Employer, then the Employer may elect to notify the Executive by certified mail, return receipt requested, that it considers the employment of the Executive as competitive employment in accordance with this Article of this Agreement. The Executive may, within sixty (60) days of receipt of such notice from the Employer terminate such competitive employment and certify the same to the Employer by certified mail, return receipt requested. However, if he shall fail to so terminate his employment and certify the same to the Employer within sixty (60) days of receipt of the notice as herein provided, no subsequent severance payments shall be due or payable following such sixtieth day, notwithstanding any other provision of this Agreement. However, this provision shall in no event affect Executive's entitlement to receive all severance payments due prior to the sixtieth day after receipt by the Executive of such notice, nor shall it in any way require Executive not to engage in such competitive employment. ARTICLE VII SETOFF No amounts otherwise due or payable under this Agreement shall be subject to setoff or counterclaim by either party hereto. ARTICLE VIII ATTORNEY'S FEES All attorney's fees and related expenses incurred by Executive in connection with or relating to the enforcement by him of his rights under this agreement shall be paid for by the Employer. ARTICLE IX SUCCESSORS AND PARTIES IN INTEREST This Agreement shall be binding upon and shall inure to the benefit of the Employer and its successors and assigns, including, without limitation, any corporation which acquires, directly or indirectly, by purchase, merger, consolidation or otherwise, all or substantially all of the business or assets FIRST COMMONWEALTH FINANCIAL CORPORATION EXHIBIT 10.4 - Change in Control Agreement - Joseph E. O'Dell (Continued) of the Employer. Without limitation of the foregoing, the Employer shall require any such successor, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that it is required to be performed by the Employer. This Agreement shall be binding upon and shall inure to the benefit of the Executive, his heirs at law and his personal representatives. ARTICLE X ATTACHMENT Neither this Agreement nor any benefits payable hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge or to execution, attachment, levy or similar process at law, whether voluntary or involuntary. ARTICLE XI EMPLOYMENT CONTRACT This Agreement shall not in any way constitute an employment agreement between the Employer and the Executive and it shall not oblige the Executive to continue in the employ of Employer, nor shall it oblige the Employer to continue to employ the Executive, but it shall merely require the Employer to pay severance benefits to the Executive under certain circumstances, as aforesaid. ARTICLE XII RIGHTS UNDER OTHER PLANS AND AGREEMENTS The severance benefits herein provided shall be in addition to, and is not intended to reduce, restrict or eliminate any benefit to which the Executive may otherwise be entitled by virtue of his termination of employment or otherwise. ARTICLE XIII NOTICES All notices and other communications required to be given hereunder shall be in writing and shall be deemed to have been delivered or made when mailed, by certified mail, return receipt requested, if to the Executive, to the last address which the Executive shall provide to the Employer, in writing, for this purpose, but if the Executive has not then provided such an address, then to the last address of the Executive then on file with the Employer; and if to the Employer, then to the last address which the Employer shall provide to the Executive, in writing, for this purpose, but if the Employer has not then provided the Executive with such an address, then to: Corporate Secretary First Commonwealth Financial Corporation Old Courthouse Square 22 North Sixth Street Indiana, Pennsylvania 15701 ARTICLE XIV GOVERNING LAW AND JURISDICTION This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Pennsylvania, except for the laws governing conflict of laws. In the event that either party shall institute suit or other legal proceeding, whether in law or equity, the Courts of the FIRST COMMONWEALTH FINANCIAL CORPORATION EXHIBIT 10.4 - Change in Control Agreement - Joseph E. O'Dell (Continued) Commonwealth of Pennsylvania shall have exclusive jurisdiction with respect thereto. ARTICLE XV ENTIRE AGREEMENT This Agreement constitutes the entire understanding between the Employer and the Executive concerning the subject matter hereof and supersedes all prior written or oral agreements or understandings between the parties hereto. No term or provision of this Agreement may be changed, waived, amended or terminated except by a written instrument of equal formality to this Agreement. IN WITNESS WHEREOF, and as conclusive evidence of the adoption of this Agreement, the parties have hereunto set their hands and seals as of the date and your first above written. (Corporate Seal) FIRST COMMONWEALTH FINANCIAL CORPORATION Attest: /S/David R. Tomb By/S/E. James Trimarchi Corporate Secretary Chairman of the Board of Directors /S/Wendy Kelly Reynolds /S/Joseph E. O'Dell Witness JOSEPH E. O'DELL EX-10 3 CHANGE IN CONTROL-GERARD M. THOMCHICK FIRST COMMONWEALTH FINANCIAL CORPORATION EXHIBIT 10.5 - Change in Control Agreement - Gerard M. Thomchick AGREEMENT FOR SEVERANCE PAYMENTS IN THE EVENT OF TERMINATION OF EMPLOYMENT UNDER CERTAIN CIRCUMSTANCES THIS AGREEMENT, by and between First Commonwealth Financial Corporation, a bank holding company organized and existing under the laws of the Commonwealth of Pennsylvania and with its principal place of business in Indiana, Pennsylvania (the "Employer") and Gerard M. Thomchick of White Township, Indiana County, Pennsylvania (the "Executive") made this 27th day of October, 1995. WITNESSETH WHEREAS, the Executive is presently employed by the Employer as its Senior Executive Vice President and Chief Operating Officer; WHEREAS, the Employer wishes to induce the Executive to continue as its Senior Executive Vice President and Chief Operating Officer and, accordingly, to provide certain employment security to said Executive in the event of a "change in control" (as hereinafter defined); WHEREAS, the Employer believes that it is in the best interest of its shareholders for the Executive to continue in his position on an objective and impartial basis and without distraction or conflict of interest as a result of a possible, or actual "change in control" (as hereinafter defined); and WHEREAS, in consideration, inter alia, of this Agreement the Executive is willing to continue as the Employer's Senior Executive Vice President and Chief Operating Officer; NOW THEREFORE, IN CONSIDERATION OF THE EXECUTIVE CONTINUING AS THE SENIOR EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER OF THE EMPLOYER AND OF THE MUTUAL PREMISES HEREIN CONTAINED, THE EXECUTIVE AND THE EMPLOYER, INTENDING TO BE LEGALLY BOUND, HEREBY AGREE AS FOLLOWS, TO WIT; ARTICLE I DEFINITIONS 1. A "Change in Control" for the purpose of this Agreement, shall be deemed to have occurred if, at any time, any person or group of persons acting in concert (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, and the regulations of the Securities and Exchange Commission promulgated thereunder) shall acquire legal or beneficial ownership interest, or voting rights, in twenty-five percent (25%) or more of the common voting stock of First Commonwealth Financial Corporation. 2. A "Triggering Event" for the purpose of this Agreement shall be deemed to have occurred if, on or after the occurrence of a Change in Control, any of the following shall occur, viz: (a) Within two (2) years from the date on which the Change In Control occurred, the Employer shall terminate the employment of the Executive, other than in the case of a Termination For Cause, as herein defined; (b) Within two (2) years from the date on which the Change In Control occurred, the Employer shall reduce the Executive's title, responsibilities, power or authority in comparison with his title, responsibilities, power or authority at the time of the Change In Control; (c) Within two (2) years from the date on which the Change In Control occurred, the Employer shall assign the Executive duties which are inconsistent with the duties assigned to the Executive on the date on which the Change In Control occurred and which duties the Employer persists in assigning to the Executive despite the prior written objection of the Executive; FIRST COMMONWEALTH FINANCIAL CORPORATION EXHIBIT 10.5 - Change in Control Agreement - Gerard M. Thomchick (Continued) (d) Within two (2) years from the date in which the Change In Control occurred, the Employer shall reduce the Executive's base compensation, his group health, life, disability or other insurance programs (including any such benefits provided to the Executive's family), his pension, retirement or profit-sharing benefits or any benefits provided by the Employer's Employee Stock Ownership Plan, or any substitute therefor, or shall exclude him from any plan, program or arrangement in which the other executive officers of the Employer are included. 3. A "Termination For Cause" for the purpose of this Agreement shall be deemed to have occurred if: (a) The Executive shall have committed a felony under the laws of the United States of America, or of any state or territory thereof, and shall have been convicted of the same, or shall have pled guilty or nolo contendere with respect to said charge, and the commission of said felony resulted in, or was intended to result in, a loss (monetary or otherwise) to the Employer or its clients, customers, directors, officers or employees, or (b) The Executive shall have deliberately and intentionally failed and refused to perform his duties to the Employer (other than during such time as the Executive shall be incapacitated due to accident or illness or during his regularly scheduled vacation periods) for a period of thirty (30) consecutive days following the receipt by him of a notice from the Employer sent by certified mail, return receipt requested, setting forth in detail the facts upon which the Employer relies in concluding that the Executive has deliberately and intentionally refused to perform his duties and indicating with specificity the duties that the Employer demands that the Executive perform forthwith. ARTICLE II SEVERANCE PAYMENT Upon the occurrence of a Triggering Event, the Employer shall pay to the Executive a severance benefit which shall be in addition to any other compensation or remuneration to which the Executive is, or shall become, entitled to receive from the Employer. Each severance payment shall be paid by the Employer to the Executive on the first day of each calendar month commencing on the first day of the month next following the month in which the Triggering Event occurred, and be payable to the Executive or his beneficiary ( as hereinafter provided) for twenty-three (23) consecutive months thereafter, so that a total of twenty-four (24) consecutive monthly payments shall be made. The amount of each such payment shall be equal to one-twelfth (1/12) of the Executive's annual base salary on the date of the Change In Control. In addition thereto, the Employer shall, at its expense, provide the Executive, and his family, with life, health, disability and accidental death and dismemberment insurance in an amount not less than that provided on the date on which the Change In Control occurred, for the period during which the monthly payments provided above are to be made. ARTICLE III LIMITATION ON PAYMENT OF BENEFITS Notwithstanding anything to the contrary herein contained, in no event shall any amount of severance payments be paid to the extent that such amount constitutes "excess parachute payments" to a "disqualified individual," as such terms are defined by Section 280G of the Internal Revenue Code of 1986, as amended (26 USC 280G) and the regulations of the Secretary of the Treasury or his delegate issued pursuant thereto. FIRST COMMONWEALTH FINANCIAL CORPORATION EXHIBIT 10.5 - Change in Control Agreement - Gerard M. Thomchick (Continued) ARTICLE IV PAYMENTS ON DEATH If the Executive shall die after the occurrence of a Triggering Event, but prior to the payment of all of the monthly severance payments required by Article II hereof, then all remaining severance payments shall be paid to the beneficiary herein provided at the same time, and in the same amount, as would have been payable to the Executive (in accordance with Article II hereof) had he survived. For this purpose, the Executive's beneficiary shall mean the person or persons designated by the Executive in a notice to the Employer, provided, however than any such designation shall be revocable during the lifetime of the Executive, and in the event that the Executive shall have given more than one such notice during his lifetime, the beneficiary designated in the last such notice shall govern. If the Executive shall not have given such a notice prior to his death, the beneficiary shall be deemed to be the same person that the Executive designated with respect to his group life insurance program maintained by the Employer. ARTICLE V VOLUNTARY TERMINATION OF EMPLOYMENT If the Executive shall resign, or otherwise voluntarily terminate, his employment with the Employer within a one (1) year period commencing on the date that a Change In Control occurred, and on the date of such resignation, or other voluntary termination of employment, he has not yet attained the earliest normal retirement date under the provisions of the Employer's Employee Stock Ownership Plan, Profit-Sharing Plan, or other qualified pension or profit-sharing plan of the Employer, then the Employer shall pay to the Executive a severance benefit which shall commence on the first day of the month following the date of such resignation or other termination of employment and shall be payable thereafter for the same period, in the same amount and under the same conditions as if such payments are made following a Triggering Event in accordance with Article II hereof. ARTICLE VI COMPETITIVE EMPLOYMENT If during the period that the Executive is receiving severance payments as herein provided, he shall become an officer, director, employee or consultant to a bank or bank holding company which provides (or whose subsidiaries or affiliates provide) trust, loan or retail banking facilities in the same county as such facilities are provided by any subsidiary or affiliate of the Employer, and which is in direct competition with the Employer, then the Employer may elect to notify the Executive by certified mail, return receipt requested, that it considers the employment of the Executive as competitive employment in accordance with this Article of this Agreement. The Executive may, within sixty (60) days of receipt of such notice from the Employer terminate such competitive employment and certify the same to the Employer by certified mail, return receipt requested. However, if he shall fail to so terminate his employment and certify the same to the Employer within sixty (60) days of receipt of the notice as herein provided, no subsequent severance payments shall be due or payable following such sixtieth day, notwithstanding any other provision of this Agreement. However, this provision shall in no event affect Executive's entitlement to receive all severance payments due prior to the sixtieth day after receipt by the Executive of such notice, nor shall it in any way require Executive not to engage in such competitive employment. FIRST COMMONWEALTH FINANCIAL CORPORATION EXHIBIT 10.5 - Change in Control Agreement - Gerard M. Thomchick (Continued) ARTICLE VII SETOFF No amounts otherwise due or payable under this Agreement shall be subject to setoff or counterclaim by either party hereto. ARTICLE VIII ATTORNEY'S FEES All attorney's fees and related expenses incurred by Executive in connection with or relating to the enforcement by him of his rights under this Agreement shall be paid for by the Employer. ARTICLE IX SUCCESSORS AND PARTIES IN INTEREST This Agreement shall be binding upon and shall inure to the benefit of the Employer and its successors and assigns, including, without limitation, any corporation which acquires, directly or indirectly, by purchase, merger, consolidation or otherwise, all or substantially all of the business or assets of the Employer. Without limitation of the foregoing, the Employer shall require any such successor, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that it is required to be performed by the Employer. This Agreement shall be binding upon and shall inure to the benefit of the Executive, his heirs at law and his personal representatives. ARTICLE X ATTACHMENT Neither this Agreement nor any benefits payable hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge or to execution, attachment, levy or similar process at law, whether voluntary or involuntary. ARTICLE XI EMPLOYMENT CONTRACT This Agreement shall not in any way constitute an employment agreement between the Employer and the Executive and it shall not oblige the Executive to continue in the employ of Employer, nor shall it oblige the Employer to continue to employ the Executive, but it shall merely require the Employer to pay severance benefits to the Executive under certain circumstances, as aforesaid. ARTICLE XII RIGHTS UNDER OTHER PLANS AND AGREEMENTS The severance benefits herein provided shall be in addition to, and is not intended to reduce, restrict or eliminate any benefit to which the Executive may otherwise be entitled by virtue of his termination of employment or otherwise. FIRST COMMONWEALTH FINANCIAL CORPORATION EXHIBIT 10.5 - Change in Control Agreement - Gerard M. Thomchick (Continued) ARTICLE XIII NOTICES All notices and other communications required to be given hereunder shall be in writing and shall be deemed to have been delivered or made when mailed, by certified mail, return receipt requested, if to the Executive, to the last address which the Executive shall provide to the Employer, in writing, for this purpose, but if the Executive has not then provided such an address, then to the last address of the Executive then on file with the Employer; and if to the Employer, then to the last address which the Employer shall provide to the Executive, in writing, for this purpose, but if the Employer has not then provided the Executive with such an address, then to: President and Chief Executive Officer First Commonwealth Financial Corporation Old Courthouse Square 22 North Sixth Street Indiana, Pennsylvania 15701 ARTICLE XIV GOVERNING LAW AND JURISDICTION This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Pennsylvania, except for the laws governing conflict of laws. In the event that either party shall institute suit or other legal proceeding, whether in law or equity, the Courts of the Commonwealth of Pennsylvania shall have exclusive jurisdiction with respect thereto. ARTICLE XV ENTIRE AGREEMENT This Agreement constitutes the entire understanding between the Employer and the Executive concerning the subject matter hereof and supersedes all prior written or oral agreements or understandings between the parties hereto. No term or provision of this Agreement may be changed, waived, amended or terminated except by a written instrument of equal formality to this Agreement. IN WITNESS WHEREOF, and as conclusive evidence of the adoption of this Agreement, the parties have hereunto set their hands and seals as of the date and your first above written. (Corporate Seal) FIRST COMMONWEALTH FINANCIAL CORPORATION Attest: /S/David R. Tomb By/S/Joseph E. O'Dell Corporate Secretary JOSEPH E. O'DELL President and Chief Executive Officer /S/Wendy Kelly Reynolds /S/Gerard M. Thomchik Witness GERARD M. THOMCHICK EX-10 4 CHANGE IN CONTROL-JOHN J. DOLAN FIRST COMMONWEALTH FINANCIAL CORPORATION EXHIBIT 10.6 - Change in Control Agreement - John J. Dolan AGREEMENT FOR SEVERANCE PAYMENTS IN THE EVENT OF TERMINATION OF EMPLOYMENT UNDER CERTAIN CIRCUMSTANCES THIS AGREEMENT, by and between First Commonwealth Financial Corporation, a bank holding company organized and existing under the laws of the Commonwealth of Pennsylvania and with its principal place of business in Indiana, Pennsylvania (the "Employer") and John J. Dolan of 110 Rural Gardens Ct., Indiana, Pennsylvania (the "Executive") made this 30th day of October, 1995; WITNESSETH WHEREAS, the Executive is presently employed by the Employer as its Senior Vice President, Comptroller and Chief Financial Officer; WHEREAS, the Employer wishes to induce the Executive to continue as its Senior Vice President, Comptroller and Chief Financial Officer and, accordingly, to provide certain employment security to said Executive in the event of a "change in control" (as hereinafter defined); WHEREAS, the Employer believes that it is in the best interest of its shareholders for the Executive to continue in his position on an objective and impartial basis and without distraction or conflict of interest as a result of a possible, or actual, "change in control" (as hereinafter defined); and WHEREAS, in consideration, inter alia, of this Agreement the Executive is willing to continue as the Employer's Senior Vice President, Comptroller and Chief Financial Officer; NOW, THEREFORE, IN CONSIDERATION OF THE EXECUTIVE CONTINUING AS THE SENIOR VICE PRESIDENT, COMPTROLLER AND CHIEF FINANCIAL OFFICER OF THE EMPLOYER, AND OF THE MUTUAL PREMISES HEREIN CONTAINED, THE EXECUTIVE AND THE EMPLOYER, INTENDING TO BE LEGALLY BOUND, HEREBY AGREE AS FOLLOWS, TO WIT: ARTICLE I DEFINITIONS 1. A "Change In Control" for the purpose of this Agreement shall be deemed to have occurred if, at any time, any person or group of persons acting in concert (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, and the regulations of the Securities and Exchange Commission promulgated thereunder) shall acquire legal or beneficial ownership interest, or voting rights, in twenty-five percent (25%) or more of the common voting stock of First Commonwealth Financial Corporation. 2. A "Triggering Event" for the purpose of this Agreement shall be deemed to have occurred if, on or after the occurrence of a Change in Control, any of the following shall occur, viz: (a) Within one (1) year from the date on which the Change In Control occurred, the Employer shall terminate the employment of the Executive, other than in the case of a Termination For Cause, as herein defined; (b) Within one (1) year from the date on which the Change In Control occurred, the Employer shall reduce the Executive's title, responsibilities, power or authority in comparison with his title, responsibilities, power or authority at the time of the Change In Control; (c) Within one (1) year from the date on which the Change In Control occurred, the Employer shall assign the Executive duties which are inconsistent with the duties assigned to the Executive on the date on which the Change In Control occurred and which duties the Employer persists in assigning to the Executive despite the prior written objection of the Executive; FIRST COMMONWEALTH FINANCIAL CORPORATION EXHIBIT 10.6 - Change in Control Agreement - John J. Dolan (Continued) (d) Within one (1) year from the date in which the Change In Control occurred, the Employer shall reduce the Executive's base compensation, his group health, life, disability or other insurance programs (including any such benefits provided to the Executive's family), his pension, retirement or profit-sharing benefits or any benefits provided by the Employer's Employee Stock Ownership Plan, or any substitute therefor, or shall exclude him from any plan, program or arrangement in which other comparable officers of the Employer are included. 3. A "Termination For Cause" for the purpose of this Agreement shall be deemed to have occurred if: (a) The Executive shall have committed a felony under the laws of the United States of America, or of any state or territory thereof, and shall have been convicted of the same, or shall have pled guilty or nolo contendere with respect to said charge, and the commission of said felony resulted in, or was intended to result in, a loss (monetary or otherwise) to the Employer or its clients, customers, directors, officers or employees, or (b) The Executive shall have deliberately and intentionally failed and refused to perform his duties to the Employer (other than during such time as the Executive shall be incapacitated due to accident or illness or during his regularly scheduled vacation periods) for a period of thirty (30) consecutive days following the receipt by him of a notice from the Employer sent by certified mail, return receipt requested, setting forth in detail the facts upon which the Employer relies in concluding that the Executive has deliberately and intentionally refused to perform his duties and indicating with specificity the duties that the Employer demands that the Executive perform forthwith. ARTICLE II SEVERANCE PAYMENT Upon the occurrence of a Triggering Event, the Employer shall pay to the Executive a severance benefit which shall be in addition to any other compensation or remuneration to which the Executive is, or shall become, entitled to receive from the Employer. Each severance payment shall be paid by the Employer to the Executive on the first day of each calendar month commencing on the first day of the month next following the month in which the Triggering Event occurred, and be payable to the Executive or his beneficiary ( as hereinafter provided) for eleven (11) consecutive months thereafter, so that a total of twelve (12) consecutive monthly payments shall be made. The amount of each such payment shall be equal to one-twelfth (1/12) of the Executive's annual base salary on the date of the Change In Control. In addition thereto, the Employer shall, at its expense, provide the Executive, and his family, with life, health, disability and accidental death and dismemberment insurance in an amount not less than that provided on the date on which the Change In Control occurred, for the period during which the monthly payments provided above are to be made. ARTICLE III LIMITATION ON PAYMENT OF BENEFITS Notwithstanding anything to the contrary herein contained, in no event shall any amount of severance payments be paid to the extent that such amount constitutes "excess parachute payments" to a "disqualified individual," as such terms are defined by Section 280G of the Internal Revenue Code of 1986, as amended (26 USC 280G) and the regulations of the Secretary of the Treasury or his delegate issued pursuant thereto. FIRST COMMONWEALTH FINANCIAL CORPORATION EXHIBIT 10.6 - Change in Control Agreement - John J. Dolan (Continued) ARTICLE IV PAYMENTS ON DEATH If the Executive shall die after the occurrence of a Triggering Event, but prior to the payment of all of the monthly severance payments required by Article II hereof, then all remaining severance payments shall be paid to the beneficiary herein provided at the same time, and in the same amount, as would have been payable to the Executive (in accordance with Article II hereof) had he survived. For this purpose, the Executive's beneficiary shall mean the person or persons designated by the Executive in a notice to the Employer, provided, however than any such designation shall be revocable during the lifetime of the Executive, and in the event that the Executive shall have given more than one such notice during his lifetime, the beneficiary designated in the last such notice shall govern. If the Executive shall not have given such a notice prior to his death, the beneficiary shall be deemed to be the same person that the Executive designated with respect to his group life insurance program maintained by the Employer. ARTICLE V COMPETITIVE EMPLOYMENT If during the period that the Executive is receiving severance payments as herein provided, he shall become an officer, director, employee or consultant to a bank or bank holding company which provides (or whose subsidiaries or affiliates provide) trust, loan or retail banking facilities in the same county as such facilities are provided by any subsidiary or affiliate of the Employer, and which is in direct competition with the Employer, then the Employer may elect to notify the Executive by certified mail, return receipt requested, that it considers the employment of the Executive as competitive employment in accordance with this Article of this Agreement. The Executive may, within thirty (30) days of receipt of such notice from the Employer, terminate such competitive employment and certify the same to the Employer by certified mail, return receipt requested. However, if he shall fail to so terminate his employment and certify the same to the Employer within thirty (30) days of receipt of the notice as herein provided, no subsequent severance payments shall be due or payable following such thirtieth day, notwithstanding any other provision of this Agreement. However, this provision shall in no event affect Executive's entitlement to receive all severance payments due prior to the thirtieth day after receipt by the Executive of such notice, nor shall it in any way require Executive not to engage in such competitive employment. ARTICLE VI SETOFF No amounts otherwise due or payable under this Agreement shall be subject to setoff or counterclaim by either party hereto. ARTICLE VII ATTORNEY'S FEES All attorney's fees and related expenses incurred by Executive in connection with or relating to the enforcement by him of his rights under this Agreement shall be paid for by the Employer. ARTICLE VIII SUCCESSORS AND PARTIES IN INTEREST This Agreement shall be binding upon and shall inure to the benefit of the Employer and its successors and assigns, including, without limitation, any corporation which acquires, directly or indirectly, by purchase, merger, FIRST COMMONWEALTH FINANCIAL CORPORATION EXHIBIT 10.6 - Change in Control Agreement - John J. Dolan (Continued) consolidation or otherwise, all or substantially all of the business or assets of the Employer. Without limitation of the foregoing, the Employer shall require any such successor, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that it is required to be performed by the Employer. This Agreement shall be binding upon and shall inure to the benefit of the Executive, his heirs at law and his personal representatives. ARTICLE IX ATTACHMENT Neither this Agreement nor any benefits payable hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge or to execution, attachment, levy or similar process at law, whether voluntary or involuntary. ARTICLE X EMPLOYMENT CONTRACT This Agreement shall not in any way constitute an employment agreement between the Employer and the Executive and it shall not oblige the Executive to continue in the employ of Employer, nor shall it oblige the Employer to continue to employ the Executive, but it shall merely require the Employer to pay severance benefits to the Executive under certain circumstances, as aforesaid. ARTICLE XI RIGHTS UNDER OTHER PLANS AND AGREEMENTS The severance benefits herein provided shall be in addition to, and is not intended to reduce, restrict or eliminate any benefit to which the Executive may otherwise be entitled by virtue of his termination of employment or otherwise. ARTICLE XII NOTICES All notices and other communications required to be given hereunder shall be in writing and shall be deemed to have been delivered or made when mailed, by certified mail, return receipt requested, if to the Executive, to the last address which the Executive shall provide to the Employer, in writing, for this purpose, but if the Executive has not then provided such an address, then to the last address of the Executive then on file with the Employer; and if to the Employer, then to the last address which the Employer shall provide to the Executive, in writing, for this purpose, but if the Employer has not then provided the Executive with such an address, then to: President and Chief Executive Officer First Commonwealth Financial Corporation Old Courthouse Square 22 North Sixth Street Indiana, Pennsylvania 15701 ARTICLE XIII GOVERNING LAW AND JURISDICTION This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Pennsylvania, except for the laws governing conflict of laws. In the event that either party shall institute suit or other legal proceeding, whether in law or equity, the Courts of the FIRST COMMONWEALTH FINANCIAL CORPORATION EXHIBIT 10.6 - Change in Control Agreement - John J. Dolan (Continued) Commonwealth of Pennsylvania shall have exclusive jurisdiction with respect thereto. ARTICLE XIV ENTIRE AGREEMENT This Agreement constitutes the entire understanding between the Employer and the Executive concerning the subject matter hereof and supersedes all prior written or oral agreements or understandings between the parties hereto. No term or provision of this Agreement may be changed, waived, amended or terminated except by a written instrument of equal formality to this Agreement. IN WITNESS WHEREOF, and as conclusive evidence of the adoption of this Agreement, the parties have hereunto set their hands and seals as of the date and your first above written. (Corporate Seal) FIRST COMMONWEALTH FINANCIAL CORPORATION Attest: /S/David R. Tomb By/S/Joseph E. O'Dell Corporate Secretary JOSEPH E. O'DELL President and Chief Executive Officer /S/Wendy Kelly Reynolds /S/John J. Dolan Witness Executive John J. Dolan FIRST COMMONWEALTH FINANCIAL CORPORATION Schedule to EXHIBIT 10.6 Change in Control Agreements were entered into between First Commonwealth Financial Corporation and the individuals listed below on October 19, October 27 and October 30, 1995. These agreements are substantially identical to that filed as Exhibit 10.6. Parties to Change in Control Agreements with First Commonwealth Financial Corporation: George E. Dash William R. Jarrett R. John Previte Kenneth D. Brougher David L. Dawson Johnston A. Glass Rosemary Krolick William Miksich Domenic P. Rocco Timothy P. Sissler Ronald R. Stacy Robert C. Wagner C. Dean Wingard EX-21 5 SUBSIDIARIES AT 12/31/95 FIRST COMMONWEALTH FINANCIAL CORPORATION Exhibit 21.1 - SUBSIDIARIES OF FIRST COMMONWEALTH FINANCIAL CORPORATION Percent Ownership By Registrant First Commonwealth Bank 100% 22 North Sixth Street Indiana, PA 15701 Reliable Financial Corporation 100% 428 Station Street Bridgeville, PA 15017 Unitas Mortgage Corporation 100% 17 East High Street Carlisle, PA 17013 Unitas Financial Corporation 100% PO Box 777 Chambersburg, PA 17201 Commonwealth Systems Corporation 100% 22 North Sixth Street Indiana, PA 15701 Incorporated under the laws of Pennsylvania First Commonwealth Trust Company 100% 614 Philadelphia Street Indiana, PA 15701 Incorporated under the laws of Pennsylvania Commonwealth Trust Credit Life Insurance Company 50% 100 West Clarendon, Suite 800 Phoenix, AZ 85013 EX-23 6 CONSENT OF GRANT THORNTON FIRST COMMONWEALTH FINANCIAL CORPORATION Exhibit 23.1 - CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated January 25, 1996, accompanying the consolidated financial statements incorporated by reference of First Commonwealth Financial Corporation and subsidiaries on Form 10K for the year ended December 31, 1995. We hereby consent to the Incorporation by reference of said reports in the Registration Statement of First Commonwealth Financial Corporation and subsidiaries on Form S-8 (File No. 33-55687) and the related prospectus. /S/Grant Thornton LLP Pittsburgh, Pennsylvania March 21, 1996 EX-23 7 CONSENT OF JARRETT STOKES & KELLY Exhibit 23.2 - CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated March 2, 1994, accompanying the consolidated financial statements incorporated by reference of First Commonwealth Financial Corporation and subsidiaries on Form 10K for the year ended December 31, 1995. We hereby consent to the Incorporation by reference of said report in the Registration Statement of First Commonwealth Financial Corporation and subsidiaries on Form S-8 (File No. 33-55687) and the related prospectus. /S/Jarrett Stokes & Kelly Indiana, Pennsylvania March 21, 1996 EX-24 8 POWER OF ATTORNEY FIRST COMMONWEALTH FINANCIAL CORPORATION Exhibit 24.1 - POWER OF ATTORNEY KNOWN ALL ME BY THESE PRESENT - that each person whose signature appears below constitutes and appoints Joseph E. O'Dell and David R. Tomb, Jr., and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to do done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE AND CAPACITY DATE /S/JOSEPH E. O'DELL March 12, 1996 Joseph E. O'Dell, President and CEO and Director /S/DAVID R. TOMB, JR. March 12, 1996 David R. Tomb, Jr., Senior Vice President, Secretary and Treasurer and Director /S/JOHN J. DOLAN March 12, 1996 John J. Dolan, Sr. Vice President and Comptroller & CFO (1) /S/A. B. HALLSTROM March 13, 1996 A. B. Hallstrom,Director /S/E. H. BRUBAKER March 15, 1996 E. H. Brubaker, Director /S/RONALD C. GEISER March 12, 1996 Ronald C. Geiser, Director /S/DALE P. LATIMER March 12, 1996 Dale P. Latimer, Director /S/HARVEY H. HEILMAN, JR. March 12, 1996 Harvey H. Heilman, Jr., Director /S/CHARLES J. SZEWCZYK March 12, 1996 Charles J. Szewczyk, Director /S/SUMNER E. BRUMBAUGH March 12, 1996 Sumner E. Brumbaugh, Director /S/JOHNSTON A. GLASS March 12, 1996 Johnston A. Glass, Director /S/JOSEPH E. PROSKE March 13, 1996 Joseph E. Proske, Director (1) Also Chief Accounting Officer EX-27 9 FINANCIAL DATA SCHEDULE 10K 12/31/95
9 1,000 YEAR DEC-31-1995 JAN-1-1995 DEC-31-1995 62,381 8,288 4,800 0 244,193 504,509 503,568 1,531,174 18,152 2,364,307 1,962,760 120,774 23,236 5,261 0 0 22,427 229,839 2,364,307 128,582 45,600 1,519 175,701 73,821 82,418 93,283 4,125 (603) 62,062 37,500 25,526 0 0 25,526 1.16 1.16 8.04 7,419 7,881 803 0 17,337 4,170 860 18,152 12,146 0 6,006
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