8. First Commonwealth Financial

Company Profile

Shares of First Commonwealth Financial of Indiana, Pa. closed at $6.89 Wednesday, for a year-to-date total return of 50%.

The small, regional lender has worked to resolve or get rid of troubled assets within its Pennsylvania footprint. It has also transferred some funding into lower-cost deposits. CEO John Dolan said that staffing and technology efficiencies "will be a strategic focus for us going forward" as the company looks to reduce costs further.

First Commonwealth's share price has had a rocky ride, climbing from a low of $4.10 cents in January to a high above $7.50 in the spring, back below $5 in the fall, then up to $7 in recent sessions. It pays a nominal quarterly dividend of a penny a share.

Based "solely on valuation" since there was "limited upside" to his price target of $7 a share, Sterne Agee analyst Mike Shafir on Wednesday downgraded the shares to neutral. He also pointed out that the shares had risen 40% since First Commonwealth completed an $86.2 common stock offering on August 4. That offering was priced at $4.65 a share.

Income Statement

First Commonwealth reported third-quarter net income of $10.7 million, or 11 cents a share, compared to a net loss of $5.9 million, or 7 cents a share a year earlier. The main factor in the year-over-year improvement was the lowering of the provision for credit losses to $4.5 million from $23 million. First Commonwealth also reported lower impairment charges of $4.3 million during the third quarter, compared to $11.9 million in the third quarter of 2009.

The company's net interest margin during the third quarter was 3.90%, increasing from 3.62% a year earlier.

Balance Sheet

Total assets were $5.9 billion as of September 30 and the nonperforming assets ratio was 2.91%, increasing from 2.66% a year earlier. The third-quarter net charge-off ratio was 0.63% and reserves covered 1.99% of total loans as of September 30.

First Commonwealth didn't participate in TARP. The company was strongly capitalized after its August offering of common shares, with a Tier 1 leverage ratio of 11.11% and a total risk-based capital ratio of 13.74% as of September 30. The tangible common equity ratio was 10.03% according to SNL Financial.

Stock Ratios

The shares trade for 1.3 times tangible book value according to SNL and 16.4 times the consensus earnings estimate of 42 cents a share for 2011. The forward P/E drops to 13.5, based on the 2012 consensus earnings estimate of 51 cents a share.

Analyst Ratings

Out of eight analysts covering the shares, one rates First Commonwealth a buy, while the rest of the analyst recommend investors hold the shares.

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