EX-99 2 mailer99ex.htm CEO LETTER TO SHAREHOLDERS FIRST COMMONWEALTH

Exhibit 99   -  First Commonwealth Financial Corporation - President and CEO's Letter to Shareholders mailed
                      November 15, 2005

   First
Commonwealth         

Banking
Insurance
Trust
Financial Management
Investments

 

 

 

First Commonwealth

 

 

Financial Corporation

 

 

22 N. 6thStreet

 

 

Indiana, Pennsylvania 15701

 

 

724-349-7220 Phone

 

 

724-349-6427 Fax

 

 

 

Joseph E. O'Dell

 

 

President and Chief Executive Officer

 

www.fcbanking.com

 

 

 

 

  November 9, 2005


Dear Shareholder:

     The Corporation reported third quarter 2005 net income of $13.0 million or $0.19 per diluted share, compared to a net loss of $2.8 million or $(0.04) per diluted share in the same period last year.  The third-quarter results include a restructuring charge of $2.7 million ($1.8 million after tax or $0.03 per diluted share) related to a previously disclosed restructuring of the Corporation's organizational structure and related personnel changes. The Corporation expects to record additional restructuring charges during the fourth quarter of 2005.  The amount of the additional restructuring charges has not yet been quantified.  The reorganization is expected to result in prospective annual pretax cost savings of approximately $2.8 million.  Last year's third quarter results included a non-recurring charge of $29.5 million ($19.2 million after tax or $0.28 per diluted share) representing a penalty for the prepayment of Federal Home Loan Bank (FHLB) long-term borrowings.  The third quarter of 2005 also included the operations of three new community offices that were not included in the third quarter of 2004.  Third quarter return on average equity was 9.62% and return on average assets was 0.83% compared with (2.13%) and (0.18%) respectively in the corresponding period last year.

     Net income for the nine months ended September 30, 2005 was $46.1 million or $0.66 per diluted share compared with $22.1 million or $0.34 per diluted share in the corresponding period last year.  Included in the nine month results are the previously detailed restructuring charge this year and last year's prepayment penalty.  Return on average equity for the nine-month period was 11.53% and return on average assets was 0.99% compared with 6.14% and 0.52% respectively for the same period last year. 

     During the third quarter, in addition to the reorganization, the company also announced numerous management changes including the appointment of Gerard M. Thomchick as President and Chief Executive Officer of First Commonwealth Bank.

     Net interest income for the third quarter of 2005 decreased $3.1 million or 6.6% to $43.0 million from $46.1 million in last year's third quarter.  Third-quarter net interest margin (net interest income as a percentage of average earning assets on a fully tax-equivalent basis) declined 16 basis points to 3.22% compared with 3.38% in the corresponding period last year.  The decline in net interest margin was due primarily to funding costs increasing at a faster rate than yields on earning assets.  Year-to-date net interest margin increased three basis points to 3.30% compared with 3.27% in last year's nine month period.  As of September 30, 2005, net loans and deposits increased 2.8% and 5.6% respectively from the balances at year end 2004.

     The Corporate reorganization announced in the third quarter includes the merger of three affiliates (First Commonwealth Systems Corporation, First Commonwealth Trust Company and First Commonwealth Professional Resources, Inc.) into First Commonwealth Bank.  These mergers will allow the organization to operate more effectively and cost efficiently.  All of the mergers are expected to be completed in the fourth quarter of 2005.  Also in the fourth quarter of 2005 the sale of five offices in Huntingdon County will be completed.  This sale is part of our long-term growth strategy as the community office footprint is shifted to locations with the greatest growth opportunities.  Three new community offices have been opened in the Pittsburgh market area this year and others have been renovated or relocated.  Additional locations are in different stages of development to be opened in 2006 and beyond.

     The Bank of New York, the transfer agent for First Commonwealth, has announced a change in the method in which 2005 tax information will be reported to the shareholders in January 2006.  Essentially, the tax information usually reported on a separate Internal Revenue Form will now be included as an attachment with either the dividend check or dividend reinvestment statement issued in January, whichever applies (if dividends are directly deposited to a bank account, a separate 1099-DIV Form will be sent).  Please be alert to this change in order that your tax information is available to you in a timely manner.

     I want to personally thank all the First Commonwealth employees on the professional and enthusiastic manner in which they have managed all the organizational changes while keeping client service foremost.  I congratulate our employees for furnishing the largest contingent of volunteer walkers in support of the American Diabetes Association and Juvenile Diabetes Foundation walks.  First Commonwealth was the lead sponsor of six walks that together raised over $1 million to fight this disease that affects one in eleven Pennsylvanians.  Nearly 500 of our employees participated in these walks which generated almost 8,000 total community volunteers.  Also, I wish to again thank you for your continued confidence in and support of First Commonwealth.

Sincerely,



/s/JOSEPH E. O'DELL





The following tables provide you with consolidated selected financial data of First Commonwealth at and for the quarter ended
September 30, 2005.  You should read this information along with the consolidated financial statements of First Commonwealth and the accompanying notes included in its annual report on Form 10-K for the year ended December 31, 2004, and its quarterly report on Form 10-Q for the quarter ended September 30, 2005, which are available to the public over the Internet at the Corporation's website at http://www.fcbanking.comor from the company upon request to the attention of the Corporate Secretary.




 

 

FIRST COMMONWEALTH FINANCIAL CORPORATION

 

 

 

 

CONSOLIDATED SELECTED FINANCIAL DATA

 

 

 

 

(Dollar Amounts in Thousands, except per share data)

 

 

 

 

 

For the Quarter Ended

For the 9 Months

 

September 30,

Ended September 30,

 

2005

2004

2005

2004

 

Interest income

$79,248

$74,940

$232,425

$202,410

Interest expense

36,214

28,881

100,819

81,109

 

     Net interest income

43,034

46,059

131,606

121,301

Provision for credit losses

2,850

2,675

7,594

7,295

 

     Net interest income after provision for credit losses

40,184

43,384

124,012

114,006

Net securities gains

34

51

519

4,046

Trust income

1,417

1,413

4,198

4,123

Service charges on deposits

4,226

4,059

11,775

11,019

Gain on sale of branch

0

0

3,090

0

Gain on sale of merchant services business

0

0

1,991

0

Insurance commissions

1,089

1,046

2,832

2,715

Income from bank owned life insurance

1,359

1,333

4,035

3,847

Merchant discount income

353

988

2,074

2,723

Card related interchange income

1,265

986

3,568

2,496

Other income

1,817

1,927

6,067

5,514

 

     Total other income

11,560

11,803

40,149

36,483

 

 

 

 

 

Salaries and employee benefits

18,320

17,303

54,482

51,147

Net occupancy expense

2,671

2,540

8,378

6,894

Furniture and equipment expense

2,844

3,064

8,473

8,290

Data processing expense

818

1,079

2,738

2,805

Pennsylvania shares tax expense

1,236

1,140

3,739

3,414

Intangible amortization

565

565

1,696

877

Merger and integration charges

0

(39)

0

2,125

Restructuring charges

2,704

0

2,704

0

Debt prepayment fees

0

29,495

0

29,495

Other operating expense

7,145

8,906

24,558

24,267

 

     Total other expenses

36,303

64,053

106,768

129,314

 

Income (loss) before income taxes

15,441

(8,866)

57,393

21,175

Applicable income taxes (benefit)

2,445

(6,071)

11,340

(913)

 

     Net income (loss)

$12,996

($2,795)

$46,053

$22,088

 

 

 

 

 

 

Average shares outstanding

69,242,056

69,077,293

69,239,005

64,784,404

Average shares outstanding assuming dilution

69,787,884

69,701,327

69,834,460

65,328,753

Per Share Data:

 

 

 

 

Basic earnings per share

$0.19

($0.04)

$0.67

$0.34

Diluted earnings per share

$0.19

($0.04)

$0.66

$0.34

Cash dividends per share

$0.165

$0.160

$0.495

$0.480

 

 

 

 

 

 

September 30,

December 31,

 

 

 

2005

2004

 

 

 

 

 

Assets

 

 

 

 

  Cash and due from banks on demand

$90,139

$79,591

 

 

  Interest-bearing bank deposits

87

2,403

 

 

  Securities available for sale, at market

1,990,929

2,162,313

 

 

  Securities held to maturity, at amortized cost

 

 

 

 

     (Market value $93,344 in 2005 and $81,886 in 2004)

90,639

78,164

 

 

  Loans:

 

 

 

 

    Portfolio loans

3,611,535

3,512,774

 

 

    Loans held for sale

1,744

2,311

 

 

    Unearned income

(142)

(252)

 

 

    Allowance for credit losses

(41,537)

(41,063)

 

 

 

 

 

        Net loans

3,571,600

3,473,770

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FIRST COMMONWEALTH FINANCIAL CORPORATION

 

 

 

 

CONSOLIDATED SELECTED FINANCIAL DATA

 

 

 

 

(Dollar Amounts in Thousands, except per share data)

 

 

 

 

 

September 30,

December 31,

 

 

 

2005

2004

 

 

 

 

 

  Premises and equipment

62,185

56,965

 

 

  Other real estate owned

1,520

1,814

 

 

  Goodwill

122,702

123,607

 

 

  Amortizing intangibles, net

15,817

17,513

 

 

  Other assets

215,423

202,338

 

 

 

 

 

        Total assets

$6,161,041

$6,198,478

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

  Deposits (all domestic):

 

 

 

 

    Noninterest-bearing

$500,834

$480,843

 

 

    Interest-bearing

3,558,849

3,363,632

 

 

 

 

 

      Total deposits

4,059,683

3,844,475

 

 

  Short-term borrowings

738,233

946,474

 

 

  Other liabilities

37,390

35,977

 

 

  Subordinated debentures

108,250

108,250

 

 

  Other long-term debt

696,580

731,324

 

 

 

 

 

      Total long-term debt

804,830

839,574

 

 

 

 

 

        Total liabilities

5,640,136

5,666,500

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

  Common stock $1 par value per share

71,978

71,978

 

 

  Additional paid-in capital

174,015

175,453

 

 

  Retained earnings

318,751

307,363

 

 

  Accumulated other comprehensive income (loss)

(10,195)

10,002

 

 

  Treasury stock

(22,116)

(26,643)

 

 

  Unearned ESOP shares

(11,528)

(6,175)

 

 

 

 

 

        Total shareholders' equity

520,905

531,978

 

 

 

 

 

          Total liabilities and shareholders' equity

$6,161,041

$6,198,478

 

 

 

 

 

 

 

 

 

 

Shares issued

71,978,568

71,978,568

 

 

Shares outstanding

70,227,342

69,868,908

 

 

Treasury shares

1,751,226

2,109,660

 

 

Book value per share

$7.42

$7.61

 

 

Market value per share

$13.33

$15.39

 

 

 

 

 

 

 

Asset Quality Data At September 30,

2005

2004

 

 

 

 

 

Loans on nonaccrual basis

$11,039

$11,784

 

 

Past due loans

14,608

12,779

 

 

Renegotiated loans

176

185

 

 

 

 

 

     Total nonperforming loans

$25,823

$24,748

 

 

Loans outstanding at end of period

$3,613,137

$3,533,509

 

 

Average loans outstanding(year-to-date)

$3,590,481

$3,159,920

 

 

Allowance for credit losses

$41,537

$43,162

 

 

Nonperforming loans as percent of total loans

0.71%

0.70%

 

 

Net charge-offs(year-to-date)

$7,120

$6,501

 

 

Net charge-offs as percent of average loans (annualized)

0.27%

0.27%

 

 

Allowance for credit losses as percent of average loans outstanding

1.16%

1.37%

 

 

Allowance for  credit losses as percent of nonperforming loans

160.85%

174.41%

 

 

Other real estate owned

$1,520

$2,295

 

 

 

 

 

 

 

Profitability Ratios

For the Quarter Ended

For the 9 Months

 

September 30,

Ended September 30,

 

2005

2004

2005

2004

 

Return on average assets

0.83%

-0.18%

0.99%

0.52%

Return on average equity

9.62%

-2.13%

11.53%

6.14%

Efficiency ratio (FTE) (a)

62.35%

104.86%

58.64%

77.47%

Fully tax equivalent adjustment

$3,634

$3,222

$10,305

$9,134

(a) Efficiency ratio is "total other expenses" as a percentage of total revenue.

     Total revenue consists of "net interest income, on a fully tax-equivalent basis," plus "total other income."

 


 

First Commonwealth Financial Corporation

                                          

Mail Address:

Old Courthouse Square

 

P.O. Box 400

22 North Sixth Street

 

Indiana PA  15701-0400

Indiana PA   15701

 

 

Telephone:  724-349-7220

 

Website:  www.fcbanking.com




INVESTOR INFORMATION


STOCK LISTING:  First Commonwealth Financial Corporation common stock is listed on The New York Stock Exchange and is traded under the symbol FCF.

For assistance regarding a change in shareholder account registration, replacing lost stock certificates/dividend checks, or an address change, please contact First Commonwealth's transfer agent listed below (for directly registered accounts only).   The Bank of New York's website also provides information regarding online Individual Account Access.  If shares are held through a brokerage firm (street name accounts), please contact the broker if there are questions regarding an account.



THE BANK OF NEW YORK

Shareholder Relations

Toll Free:  1-800-524-4458

 

Church Street Station

Website:   www.stockbny.com

 

P.O. Box 11258

 

 

New York, NY   10286-1258

 



DIVIDEND REINVESTMENT PLAN:  First Commonwealth Financial Corporation offers a direct purchase and dividend reinvestment plan, First Commonwealth Stock Direct, administered by The Bank of New York.  The plan allows both directly registered shareholders and interested first-time investors to purchase First Commonwealth common stock without the customary brokerage expenses and also to automatically reinvest cash dividends paid on the common stock.  Purchases made through the Plan with reinvested dividends receive a 10% discount on the fair market price (on shareholder accounts directly held with the Bank of New York).  For more information, please visit our website at www.fcbanking.com (click on "Investor Relations").  You can also download a copy of the plan prospectus and enrollment form through The Bank of New York's website, www.stockbny.com (click on "Company List", then "First Commonwealth").  Copies may also be requested from The Bank of New York by phone or mail.


DIRECT DEPOSIT OF DIVIDENDS:  Direct deposit of dividend payments to a checking or savings account is also available. To enroll, please call The Bank of New York for an Authorization Form (completed forms must be received by The Bank of New York 30 days prior to the dividend payment date). 

INVESTOR/SHAREHOLDER INQUIRIES:  Request for information or assistance regarding the Corporation should be directed to the attention of Shareholder Relations at the Corporate Office in Indiana, PA 1-800-331-4107.

FORWARD LOOKING STATEMENTS:  The enclosed shareholder communication contains "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995, that involve significant risks and uncertainties.  Actual results could differ materially from those contained in or implied by such statements for a variety of reasons including, but not limited to:  the timing and magnitude of changes in interest rates; changes in accounting principles, policies, or guidelines:  changes in regional, national and global economic conditions; changes in regulatory requirements, and significant changes in the securities markets.  Consequently, all forward-looking statements made in this shareholder communication are qualified by these cautionary statements and the cautionary language in First Commonwealth's most recent Form10-K report and other documents filed with the Securities and Exchange Commission.



First

              Commonwealth

 

                         First Commonwealth

                           Financial Corporation