Oct. 13, 2009 (Business Wire) -- Fitch Ratings has affirmed the long- and short-term Issuer Default Ratings (IDRs) for First Commonwealth Financial Corporation (FCF) and its bank subsidiary, First Commonwealth Bank at 'BBB' and 'F2', respectively. The Rating Outlook has been revised to Negative.
The impact of heightened credit costs has hampered the company's financial performance during the first half of 2009 (1H'09). Escalating provisions have been driven by deterioration in FCF's out-of-footprint commercial real estate (CRE) construction exposures. Nonetheless, charge-offs remain moderate and lower than similarly rated peers. Earnings have also been pressured by OTTI charges related to losses on pooled trust preferred collateralized debt obligations.
FCF's overall operating performance metrics, which are supported by a healthy net interest margin and strong deposit growth, remain sound. Given the recent marketplace disruption and industry consolidation amongst the company's largest competitors in Western Pennsylvania, FCF remains opportunistic and focused on capturing a higher market-share in its footprint. Although NPAs have increased from the aforementioned CRE credits, total non-performing loans reside at manageable levels. Overall, the company's out-of-market CRE exposure is a relatively low portion of its overall balance sheet mix. In addition, FCF's ratings remain supported by solid capital levels, which the company has prudently enhanced through the $115 million common equity raise in 4Q'08 and the recent dividend payout reductions. It is worthy to note that the company chose not to participate in the Treasury's CPP program.
Fitch has also widened the notching on FCF's preferred stock rating. As discussed in Fitch's press release, 'Expectations for Higher Loan Losses Driving U.S. Bank Ratings Review' dated May 7, 2009, an analysis of the notching between IDRs and hybrid equity instruments has been underway, and Fitch has taken similar action on other issuers. Furthermore, while additional sources of liquidity exist and holding company liquidity has been preserved via the aforementioned dividend reduction, if the dividends from the bank were to be stopped, Fitch believes the risk would elevate.
As reflected in the Negative Outlook, stress is expected to persist in the company's CRE book and investment portfolio. In addition, economic difficulties will likely result in rising problems in other loan portfolio categories. Should credit costs become more pronounced than anticipated, creating pressure on sound capital levels and impeding the company's financial performance, negative rating implications could ensue.
Headquartered in Indiana, Pennsylvania with $6.4 billion in assets, First Commonwealth Financial Corporation (FCF) operates 115 branches and three loan production offices across western and central Pennsylvania.
Fitch has affirmed the following ratings with a Negative Outlook:
First Commonwealth Financial Corp.
--Long-term IDR at 'BBB';
--Short-term IDR at 'F2';
--Individual Rating at 'B/C';
--Support at '5';
--Support Floor at 'NF'.
First Commonwealth Bank
--Long-term IDR at 'BBB';
--Long-term Deposits at 'BBB+';
--Short-term IDR at 'F2';
--Short-term Deposits at 'F2';
--Individual Rating at 'B/C';
--Support at '5';
--Support Floor at 'NF.'
Fitch has downgraded the following rating:
First Commonwealth Capital Trust
--Preferred Stock to 'BB+' from 'BBB-'.
Additional information is available at www.fitchratings.com.
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