First Commonwealth Financial(FCF) - 2023 Q3 - Quarterly Report

Part I Financial Statements and Supplementary Data This section presents First Commonwealth Financial Corporation's unaudited consolidated financial statements and detailed notes, covering key financial positions, performance, and the Centric acquisition Consolidated Statements of Financial Condition Total assets increased to $11.42 billion by September 30, 2023, driven by growth in net loans and deposits, significantly influenced by the Centric acquisition Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $11,421,988 | $9,805,666 | | Net loans and leases | $8,767,388 | $7,539,237 | | Goodwill | $363,715 | $303,328 | | Total Liabilities | $10,181,457 | $8,753,592 | | Total deposits | $9,241,065 | $8,005,469 | | Total Shareholders' Equity | $1,240,531 | $1,052,074 | Consolidated Statements of Income Net income for the nine months ended September 30, 2023, increased to $112.2 million, driven by higher net interest income, with diluted EPS rising to $1.10 Income Statement Summary (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $289,939 | $224,194 | $97,757 | $82,360 | | Provision for credit losses | $16,678 | $11,986 | $5,885 | $5,923 | | Total noninterest income | $72,312 | $74,399 | $24,826 | $25,914 | | Total noninterest expense | $204,737 | $171,304 | $67,413 | $59,901 | | Net Income | $112,236 | $92,448 | $39,231 | $33,968 | | Diluted EPS | $1.10 | $0.98 | $0.38 | $0.36 | Consolidated Statements of Comprehensive Income Comprehensive income for the nine months ended September 30, 2023, significantly improved to $95.9 million from a $41.1 million loss in 2022, primarily due to reduced other comprehensive losses Comprehensive Income (Loss) (in thousands) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $112,236 | $92,448 | $39,231 | $33,968 | | Total other comprehensive loss | $(16,362) | $(133,521) | $(15,503) | $(45,264) | | Comprehensive Income (Loss) | $95,874 | $(41,073) | $23,728 | $(11,296) | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased to $1.24 billion by September 30, 2023, driven by the Centric acquisition and net income, partially offset by dividends and share repurchases - Total shareholders' equity grew to $1,240.5 million at September 30, 2023, up from $1,052.1 million at December 31, 2022[16] - Key drivers of the equity increase were net income of $112.2 million and common stock issued for the Centric acquisition valued at $141.4 million[16] - Key reductions to equity included cash dividends of $38.1 million, treasury stock purchases of $14.1 million, and an other comprehensive loss of $16.4 million[16] Consolidated Statements of Cash Flows Net cash increased by $182.8 million for the nine months ended September 30, 2023, driven by financing activities and operating cash flow, offsetting investing outflows Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $106,737 | $108,680 | | Net cash used in investing activities | $(348,990) | $(328,451) | | Net cash provided by financing activities | $425,079 | $5,171 | | Net increase (decrease) in cash | $182,826 | $(214,600) | Notes to the Unaudited Consolidated Financial Statements These notes provide detailed explanations of the financial statements, covering accounting policies, the Centric acquisition, comprehensive income, cash flows, and specific financial components Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial condition and operating results, highlighting net income growth driven by net interest income and the Centric acquisition, alongside liquidity, market, credit, and capital profiles - Net income for the nine months ended Sep 30, 2023, was $112.2 million ($1.10/share), up from $92.4 million ($0.98/share) in the prior year, driven by a $65.7 million increase in net interest income[219] - Net income for Q3 2023 was $39.2 million ($0.38/share), compared to $34.0 million ($0.36/share) in Q3 2022, primarily due to a $15.4 million increase in net interest income[253] - The acquisition of Centric on January 31, 2023, significantly impacted results, contributing to growth in loans, deposits, goodwill, and related income and expenses[23][219] Results of Operations Net income for the nine months ended September 30, 2023, increased to $112.2 million, driven by net interest margin expansion and loan growth, partially offset by higher noninterest expenses Key Performance Ratios (Nine Months Ended Sep 30) | Ratio | 2023 | 2022 | | :--- | :--- | :--- | | Return on average assets | 1.37% | 1.29% | | Return on average equity | 12.35% | 11.47% | | Net interest margin | 3.87% | 3.45% | - Nine-month noninterest income decreased by $2.1 million, primarily due to a $2.9 million decline in swap fee income and a $1.2 million drop in gain on sale of mortgage loans[245][246] - Nine-month noninterest expense increased by $33.4 million, driven by a $12.3 million rise in salaries/benefits, $8.9 million in merger costs, and a $2.4 million increase in FDIC insurance[247] Liquidity and Market Risk The company maintains a strong liquidity position with $4.42 billion in net available sources, while its asset-sensitive market risk profile projects a 1.42% net interest income increase in a +100 bps rate shock Liquidity Sources as of September 30, 2023 (in thousands) | Source | Total Available | Net Available | | :--- | :--- | :--- | | Unencumbered securities | $685,309 | $685,309 | | FHLB advances | $2,408,203 | $1,345,733 | | FRB borrowings | $1,076,320 | $1,076,320 | | Lines with other financial institutions | $160,000 | $160,000 | | Brokered deposits (limit) | $1,139,321 | $1,111,162 | | Total Liquidity | $5,509,936 | $4,419,307 | - Estimated uninsured deposits totaled $2.6 billion at September 30, 2023, up from $2.1 billion at year-end 2022[289] Net Interest Income Sensitivity (Gradual 12-Month Change) | Scenario | Change in NII ($) | Change in NII (%) | | :--- | :--- | :--- | | +200 bps | $9,993 | 2.48% | | +100 bps | $5,717 | 1.42% | | -100 bps | $(3,988) | (0.99)% | | -200 bps | $(9,359) | (2.32)% | Credit Risk Nonperforming loans increased to $47.9 million (0.54% of total loans), largely due to Centric acquisition, while the allowance for credit losses rose to $134.3 million (1.51% of loans), providing strong coverage Credit Quality Indicators | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Nonperforming Loans (NPLs) | $47,924 | $35,487 | | NPLs as % of Total Loans | 0.54% | 0.46% | | Allowance for Credit Losses (ACL) | $134,337 | $102,906 | | ACL as % of Total Loans | 1.51% | 1.35% | | ACL as % of NPLs | 280.31% | 289.98% | - The increase in nonperforming loans was primarily due to $22.0 million in loans acquired from Centric[302] - Net charge-offs for the nine months ended Sep 30, 2023, were $13.8 million, up from $5.1 million in the prior year period. $8.8 million of the 2023 charge-offs related to loans acquired from Centric[311] Capital Resources The company maintains a strong, well-capitalized position with a 10.90% CET1 ratio, supported by increased shareholders' equity from the Centric acquisition and retained earnings Regulatory Capital Ratios (First Commonwealth Financial Corporation) | Ratio | Sep 30, 2023 | Required to be Well Capitalized | | :--- | :--- | :--- | | Common Equity Tier 1 | 10.90% | 6.50% | | Tier I Capital | 11.64% | 8.00% | | Total Capital | 13.79% | 10.00% | | Tier I Leverage | 9.85% | 5.00% | - Shareholders' equity increased to $1.2 billion, up $188.5 million from Dec 31, 2022, primarily due to the Centric acquisition and net income[312] - The Board of Directors authorized a $25 million increase to the share repurchase program in April 2023. As of Sep 30, 2023, 2,418,393 shares have been repurchased under the programs[319] Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the detailed market risk disclosures from the MD&A, outlining the company's interest rate risk exposure and asset-sensitive position - The report refers to the 'Market Risk' section within the MD&A for disclosures on this topic[322] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures are effective in ensuring timely and accurate SEC reporting - The CEO and CFO concluded that the company's disclosure controls and procedures are effective and provide reasonable assurance[324] Part II Legal Proceedings The company is involved in various legal proceedings, with management anticipating no material impact on its financial position, estimating possible losses between $0 and $1 million - Management does not expect pending litigation to have a material impact on the company's financial position[51] - The range of reasonably possible losses beyond any recorded liability is estimated between $0 and $1 million[51] Risk Factors A new risk factor addresses the impact of recent bank failures, highlighting potential negative effects on depositor confidence, market volatility, and increased funding costs - A new risk factor was disclosed concerning the impact of recent bank failures on the financial services industry[328] - Potential impacts include decreased depositor confidence, market volatility, stricter regulations, higher capital requirements, and increased funding costs[328][329] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 259,639 shares at an average price of $12.36 during Q3 2023, following a $25 million increase to its repurchase program Q3 2023 Share Repurchases | Month Ending | Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 31, 2023 | 38,700 | $12.47 | | August 31, 2023 | — | — | | September 30, 2023 | 220,939 | $12.34 | | Total | 259,639 | $12.36 | Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - Filed exhibits include Sarbanes-Oxley certifications from the CEO and CFO, and XBRL data files[333]