First Commonwealth Financial Corporation

Good afternoon and welcome to the FCF First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I'd now like to turn the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead.

Thanks, Grant. Good afternoon, everyone. Thank you for joining us today. Participating on today's call from separate locations across our footprint in Pennsylvania and Ohio will be Mike Price, President and CEO, Jim Reske, Chief Financial Officer, and Brian Karup, Chief Credit Officer. After prepared remarks from management, we will open the call to your questions. For that portion of the call, we will be joined by our bank president, Janger Bentz. As a reminder, a copy of today's earnings release can be accessed by logging on to FCBanking.com and selecting the Investor Relations link at the top of the page. We have also included a slide presentation in our Investor Relations website with supplemental financial information that will be referenced throughout today's call. Before we begin, I need to caution listeners that this call will contain forward-looking statements. Please refer to our forward-looking statements disclaimer on page two of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Today's call will also include non-GAAP financial measures. These non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. A reconciliation of these measures can be found in the appendix of today's slide presentation. And with that, I will turn the call over to Mike Price.

Hey, thank you, Ryan. The COVID-19 pandemic has significantly disrupted the health and well-being of our communities. Our banking teams at First Commonwealth are engaged along a variety of fronts. We've adopted emerging best practices and followed direction from health and government leaders around COVID-19 to protect our employees, customers, and communities. Our bankers were proactive early on in reaching out to customers and offering forbearance to consumers and businesses who were pressing forward in the wake of this pandemic. At quarter end, we had modified over 2,200 loans for our borrowers, impacting $145 million in loans. Rolling forward to last Friday, April 24th, payment relief had been extended to over 5,800 consumers and businesses on $1.1 billion in total loans. However, the number of modifications had trailed off to a trickle. The third, the team was all in on the first wave of the Paycheck Protection Program, funding and helping 1,500 customers secure $426 million in government loans. Approximately 85% of those loans were less than $350,000. We are a preferred SBA lender in 2019. ranked as the number two SBA lender in Pittsburgh and the number three SBA lender in Cleveland. We are now eagerly engaged in securing a second wave of PPP loans for our customers as government funding has resumed. We expect the typical loan amount to be lower than wave one. Fourth, the volumes through our operations areas have been unprecedented. From loan modifications to PPP loan processing, and stimulus checks, from call center volumes to mobile chats, from online mobile deposit account openings to log bins on our digital platforms. The team has shifted a significant portion of our workforce from our branch and select areas to call centers, underwriting, documentation, and loan processing, while training them to meet the new operational reality of the week or month. As we work through opportunities with our customers every day, the COVID-19 pandemic is accelerating the change in the banking landscape. We expect ongoing change and are evaluating additional near and long-term opportunities surrounding growth, efficiency, expense, and net interest margin as we reshape our business. We are not waiting for business to return to normal. Our business is undergoing rapid, longer-term structural change that we must and will anticipate. As we reflect on the first quarter, it's important to note that we've been preparing for a downturn for years. The team has added new growth engines to include mortgage and SBA. We've built a geographic-based regional president model led by local presidents accountable for their markets in delivering the bank cross-functionally to our customers and prospects. We've moved to a universal business model in our branches several years ago which enabled flexibility in staffing and broader talent development. We have significantly expanded our digital capabilities and most recently our call center capabilities as well. We've sought better balance between our commercial and consumer businesses as well as between our variable and fixed rate lending. The team has built a strong, low-cost, core funding franchise where roughly one-half of our deposits are non-interest-bearing and now transaction accounts, split evenly between consumer and business customers. Our acquisition strategy has been accretive to our low-cost, core funding and profitability. Similarly, we have expanded our footprint to adjacent markets that we know well in both Ohio and central Pennsylvania, and executed flawlessly on a series of smaller, lower-risk acquisitions. These newer markets account for the majority of brisk loan and deposit growth in the first quarter. We have paid down our borrowing significantly to give us flexibility for times like these. We have fortified our capital position organically and also with the issuance of $100 million in sub-debt roughly two years ago, which leaves us ready to withstand the current crisis. And from a credit perspective, we have improved the granularity of our loan portfolio and cut the number of larger credits by two-thirds while actively managing the segment and concentration limits. In the first quarter, our net income fell to $4.7 million, or five cents per share, as our provision expense increased to $31 million, despite only 3.5 million or 23 basis points of net charge-offs. Using the incurred allowance for loan loss methodology, the reserve billed with some 42 basis points to 1.25% of total loans in the first quarter. Jim will speak to spread income, non-interest income and expenses and a number of other things. However, our pre-tax, pre-provision first quarter earnings were good. The company is well capitalized with ample liquidity. Our reserve billed this quarter is appropriate, given the specter of COVID-19 and what may lie ahead. Our continued focus on building low-cost core funding and leveraging our regional business model for growth make us optimistic about the future of our company. I would now like to turn it over to Jim Ruskie, our CFO, followed by Brian Karup, our Chief Credit Officer, provided more color commentary on the first quarter, capital and credit. I've also asked Jane Verbents, our bank president, to join us as well for the question and answer session. Jim.