FIRST COMMONWEALTH FINANCIAL CORPORATION Item 8.01 Other Events.
As previously reported, onAugust 30, 2022 ,First Commonwealth Financial Corporation (the "Company," "we," or "our" or "FCF"), entered into an Agreement and Plan of Merger (the "Agreement") providing for, among other things, the merger (the "Merger") of Centric Financial Corporation ("CFC") with and into the Company, with the Company as the surviving entity. In connection with the Merger, the Company filed with theSecurities and Exchange Commission (the "SEC") a registration statement on Form S-4 containing a proxy statement/prospectus, as amended, datedDecember 19, 2022 (the "Proxy Statement/Prospectus"), and CFC commenced mailing the Proxy Statement/Prospectus to shareholders of CFC on or aboutDecember 22, 2022 . OnJanuary 17, 2023 , a complaint, captioned [Charles Reinhardt v.Donald E. Enders Jr . et al. (Case No. 2023-00307)] (the "Complaint"), was filed in theCourt of Common Pleas inCumberland County, Pennsylvania . The Complaint alleges, among other things, that the Proxy Statement/Prospectus contains certain disclosure deficiencies. The Company and CFC believe that the claims asserted in the Complaint are without merit and supplemental disclosures are not required or necessary under applicable laws. However, in order to avoid the risk that the Complaint delays or otherwise adversely affects the Merger, to minimize the costs, risks and uncertainties inherent in litigation, and to provide additional information to CFC's shareholders, the Company and CFC, without admitting any liability or wrongdoing, have agreed to voluntarily supplement the Proxy Statement/Prospectus with the supplemental disclosures described in the following section entitled "Supplemental Disclosures" in this Current Report on Form 8-K. Nothing in this Current Report on Form 8-K is an admission, or shall be deemed an admission, of the legal necessity or materiality under applicable laws of any of the disclosures set forth herein. To the contrary, the Company and CFC deny all allegations in the Complaint that additional disclosure was or is required.
Supplemental Disclosures
The additional disclosures (the "supplemental disclosures") in this Current Report on Form 8-K supplement the disclosures contained in the Proxy Statement/Prospectus and should be read in conjunction with the Proxy Statement/Prospectus, which should be read in its entirety. To the extent that information in the supplemental disclosures differs from, or updates information contained in, the Proxy Statement/Prospectus, the information in the supplemental disclosures shall supersede or supplement the information in the Proxy Statement/Prospectus. Capitalized terms used herein, but not otherwise defined, shall have the meanings ascribed to such terms in the Proxy Statement/Prospectus.
The Proxy Statement/Prospectus is hereby revised to reflect the following:
1.The five paragraphs of disclosure under the heading "Opinion of CFC's Financial Advisor - Discounted Cash Flow Analysis - Company" is replaced by the following language on page 55 of the Proxy Statement/Prospectus:
Stephens performed a standalone discounted cash flow analysis using projections developed by the executive management team of CFC, and then calculated a range of implied equity values for CFC based upon the discounted net present value of the projected after-tax free cash flows for the projected period. Stephens determined the amount of cash flow assuming (i) a terminal earnings multiple of 10.0x and (ii) a present value of the Company's implied standalone terminal value of$221.5 million based on 2027 estimated earnings. In selecting a terminal earnings multiple, Stephens considered a range implied by major exchange-traded$1.5 billion asset-sized banks of 9.0x to 11.0x. Stephens selected the midpoint of the selected range of 10.0x as the terminal earnings multiple. Stephens calculated the terminal value of CFC by applying the selected terminal earnings multiple to CFC's calendar year 2027 projected net income of$22.1 million . The resulting terminal value for CFC was approximately$221.5 million based on the 10.0x price to forward earnings multiple. Stephens considered discount rates implied by major exchange-traded$1-5 billion asset-sized banks from 13.0% to 17.0%. Using the CAPM methodology, Stephens calculated the range of discount rates using values for 3-year unlevered beta relative to the S&P 500, re-levered for the tax and capital structure of CFC. Stephens considered the equity risk premium and size based premium as outlined in the 2021 Duff & Phelps Valuation Handbook and the risk free rate based on theU.S. 30 year treasury rate of 3.2% as ofAugust 29, 2022 . -------------------------------------------------------------------------------- The following table summarizes the terminal value of CFC that Stephens calculated by applying the selected terminal earnings multiple to CFC's 2027 projected adjusted net income: ($ in thousands) CFC's 2027 Adjusted Net Income$ 22,149 Terminal Earnings Multiple 10.0x CFC Terminal Value$ 221,493 The following table summarizes the forecasted free cash flows for CFC calculated by Stephens: 6 Months Ended 12 Months Ended ($ in thousands) 6/30/22 12/31/2022 12/31/2023 12/31/2024 12/31/2025 12/31/2026 12/31/2027 CFC Net Income to Common$ 6,644
$ 22,149 After-Tax Interest on Distributed Cash Flows $ 0 $ 0 $ 0 $ 0$ 0 $ 0 Adjusted Net Income$ 6,644 $ 16,585 $ 17,829 $ 19,166 $ 20,604 $ 22,149 Capital Outflows / (Contributions) $ 0 $ 0 $ 0 $ 0$ 0 Terminal Value$ 221,493 Free Cash Flows$ 0 $ 0 $ 0 $ 0 $ 0$ 221,493 Net Present Value of Terminal Value$ 117,979 Fully Diluted Shares Outstanding1$ 8,681 Net Present Value per Share$ 13.59
Source:
Note: Selected terminal multiple implied by a peer group of major
exchange-traded
1.Fully diluted shares outstanding is based on the Treasury Stock Method,
year-to-date average CFC common shares outstanding as of
Based on this analysis, Stephens derived a range for the implied equity value of
the Company from
NPV per Share
Discount Terminal Multiple
Rate 9.0x 10.0x 11.0x
13% $13.24 $14.71 $16.18
14% $12.72 $14.14 $15.55
15% $12.23 $13.59 $14.95
16% $11.76 $13.07 $14.38
17% $11.32 $12.57 $13.83
The discounted cash flow analysis is a widely used valuation methodology, but
the results of this methodology are highly dependent on the assumptions that
must be made, including asset and earnings growth rates, terminal values,
capital levels, and discount rates. The analysis did not purport to be
indicative of the actual values or expected values of CFC. The actual results
may vary from the projected results, any of these assumptions might not be
realized in future operations and the variations may be material.
The disclosure under the heading "Opinion of CFC's Financial Advisor - Certain
Unaudited Prospective Financial Information - Prospective Financial Information
Regarding FCF" is supplemented by adding the following language at the end of
second full paragraph on page 57 of the Proxy Statement/Prospectus:
Stephens was also provided the following information by FCF management, which
was approved by FCF and CFC for use by Stephens in connection with developing
its fairness opinion: (i) cost savings are anticipated to be 35%, with 75%
phased in during 2023 and 100% in 2024 and thereafter; (ii) one-time charges in
connection with the merger of $14.6 million on pre-tax basis ($11.8 million on
an after-tax basis); (iii) FCF would pay off CFC's existing $10.0 million credit
facility at closing; and (iv) pro forma regulatory capital ratios at closing as
follows: (a) Tier 1 Leverage Ratio of 9.8%, (b) Common Equity Tier 1 Ratio of
11.2%, (c) Tier 1 Capital Ratio of 12.0%, and (d) Total Risk Based Capital Ratio
of 14.4%.
--------------------------------------------------------------------------------Important Information About the Proposed Transaction and Where to Find It
In connection with the Merger, FCF filed a Registration Statement on Form S-4 with theSEC (the "Registration Statement"), which includes the Proxy Statement/Prospectus. The Registration Statement, as amended, was declared effective by theSEC onDecember 21, 2022 , and CFC mailed the Proxy Statement/Prospectus to CFC shareholders on or aboutDecember 22, 2022 . Additionally, the Company and CFC filed and may file other relevant materials with theSEC in connection with the Merger. Copies of such filings may be obtained free of charge at theSEC's web site at www.sec.gov. SHAREHOLDERS OF CFC ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO AND ANY DOCUMENTS INCORPORATED BY REFERENCE THEREIN) AND THE OTHER RELEVANT MATERIALS BEFORE MAKING ANY VOTING DECISION WITH RESPECT TO THE MERGER BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER AND THE PARTIES THERETO. The information contained on, or that may be accessed through, the websites referenced in this communication is not incorporated by reference into, and is not a part of, this communication.
Participants in the Solicitation
CFC and its directors and officers may be deemed participants in the solicitation of proxies of CFC's shareholders in connection with the proposed Merger. Shareholders may obtain more detailed information regarding the names, affiliations, and interests of certain of CFC's executive officers and directors in the solicitation by reading the Proxy Statement/Prospectus and other relevant materials filed with theSEC in connection with the Merger. Information concerning the interests of CFC's participants in the solicitation, which may, in some cases, be different than those of their shareholders generally, is set forth in the Proxy Statement/Prospectus. --------------------------------------------------------------------------------
Cautionary Language Regarding Forward-Looking Statements
Certain statements contained in this Current Report on Form 8-K, including statements included or incorporated by reference in this Current Report on Form 8-K, are not statements of historical fact and constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, and are intended to be protected by the safe harbor provided by that Act. These statements are subject to risks and uncertainties and include information about possible or assumed future results of operations of FCF after the Merger is completed, as well as information about the Merger. Words such as "believes," "expects," "anticipates," "estimates," "intends," "would," "continue," "should," "may," or similar expressions, or the negatives thereof, are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Many possible events or factors could affect the future financial results and performance of each of FCF and CFC before the Merger or FCF after the Merger, and could cause those results or performance to differ materially from those expressed in the forward-looking statements. These possible events or factors include, but are not limited to: (a) general business and economic conditions, either globally, nationally, or in the specific markets in which FCF or CFC operate, including the negative impacts and disruptions resulting from rising interest rates, supply chain challenges and inflation, which have had and may likely continue to have an adverse impact on our business operations and performance, and could continue to have a negative impact on our credit portfolio, stock price, borrowers and the economy as a whole both globally and domestically; (b) the failure to obtain the approval of CFC's shareholders in connection with the Merger; (c) the risk that the Merger may not be completed in a timely manner or at all, which may adversely affect FCF's and CFC's respective businesses and the price of their respective common stocks; (d) the risk that a condition to closing of the proposed Merger may not be satisfied; (e) the parties' ability to achieve the synergies and value creation contemplated by the proposed Merger; (f) the parties' ability to promptly and effectively integrate the businesses of FCF and CFC, including unexpected transaction costs, including the costs of integrating operations, severance, professional fees and other expenses; (g) the diversion of management time on issues related to the Merger; (h) the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement; (i) the effect of the announcement or pendency of the Merger on FCF's and CFC's customer, employee and business relationships, operating results, and business generally; (j) deposit attrition, operating costs, customer loss and business disruption following the proposed Merger, including difficulties in maintaining relationships with employees, may be greater than expected; (k) reputational risks and the reaction of the companies' customers to the proposed Merger; (l) customer acceptance of the combined company's products and services; (m) increased competitive pressures and solicitations of customers and employees by competitors; (n) the failure to consummate or delay in consummating the Merger for other reasons; (o) the outcome of any legal proceedings that may be instituted against FCF or CFC related to the Merger Agreement or the Merger; (p) changes in laws or regulations; (q) the dilution caused by FCF's issuance of additional shares of its common stock in the Merger or related to the Merger; (r) the sale price of FCF common stock could decline before the completion of the Merger, including as a result of the financial performance of FCF or CFC or more generally due to broader stock market movements and the performance of financial companies and peer group companies; (s) changes in interest rates, deposit flows, loan demand, and real estate values; and (t) the ongoing impacts and disruptions resulting from COVID-19 or other variants on the economies and communities FCF and CFC serve, which has had and may likely continue to have an adverse impact on each company's business operations and performance, and could continue to have a negative impact on our credit portfolio, stock price, borrowers and the economy as a whole both globally and domestically. For additional information concerning factors that could cause actual conditions, events or results to materially differ from those described in the forward-looking statements, please refer to the "Risk Factors" section of the Proxy Statement/Prospectus, as well as the factors set forth under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in FCF's most recent Form 10-K and Form 10-Q reports, which are available online at www.sec.gov, and are incorporated by reference herein. No assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do occur, what impact they will have on the results of operations or financial condition of FCF or CFC. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date made. As for the forward-looking statements that relate to future financial results and other projections, actual results will be different due to the inherent uncertainties of estimates, forecasts and projections and may be better or worse than projected and such differences could be material. Given these uncertainties, we caution you not to place reliance on these forward-looking statements. Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results. We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.
No Offer or Solicitation
This communication shall not constitute a solicitation of a proxy, consent or authorization with respect to any securities or in respect of the proposed transaction. This communication shall also not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any states or jurisdictions in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
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