First Commonwealth Financial Corporation

and welcome to the first Commonwealth Financial Corporation third quarter 2020 earnings 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. Please note, this event is being recorded. I would now like to turn the conference over to Ryan Thomas.

Please go ahead. Thank you, Jason. Good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation's third quarter financial results. Participating on today's call will be Mike Price, President and CEO, Jim Reske, Chief Financial Officer, Brian Karup, Chief Credit Officer, and Jane Grabenz, Bank President and Chief Revenue Officer. 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 on our Investor Relations website with supplemental financial information that will be referenced throughout today's call. Before we begin, we 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 list of descriptions and 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. 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. With that, I will turn the call over to Mike.

Hey, thanks, Ryan. The team and I are pleased with the quarter, and we're enjoying playing some offense in our consumer lending businesses. Over the last several years, we've made significant investments in our digital capacity, our regional business model to spur growth, our fee businesses, and a stronger consumer lending platform. The fruits of these investments are apparent in our third quarter results. With several recent efforts like Project Thrive, we have made these investments while maintaining positive operating leverage and improving our efficiency. Third quarter core earnings per share of 24 cents was consistent with last quarter, even as we further increased loan loss reserves. The core efficiency ratio improved to a record low of 54.45%, and the core pre-tax pre-provision ROA strengthened to 1.74%. Core pre-tax pre-provision net income was $41.1 million, up some 14% over the second quarter. The company achieved record quarterly fee income of $26.7 million, an increase of $4.9 million from the previous quarter. This more than offset a $4.4 million increase in provision expense to $11.2 million. Several important themes continue to unfold, namely, first, in the third quarter, credit was solid, and we continued to build loan loss reserves to recognize the impact of the pandemic. Excluding PPP balances, The allowance for loan losses as a percentage of total loans increased 10 basis points to 1.38%. Including previously disclosed day one CECL adjustment, the coverage ratio excluding PPP loans would increase to 1.59% as seen on page 10 of the earnings supplement. The reserve bill was driven by several qualitative factors in our incurred loss model. which Brian will cover during his remarks. Our non-performing loans fell from $56 million at the end of the second quarter to $49.7 million at the end of the third quarter. On page 13 of the earnings supplement, COVID-19 referrals totaled 2.68% as of July 24th. Those referrals fell to 17 basis points as of October 23rd or last Friday. Similarly, on page 12 of the earnings supplement, deferrals on the commercial portfolios most impacted by COVID declined again from 3.4% on July 24th to 14 basis points as of last Friday. I believe we are well positioned at this stage of the pandemic with a strong balance sheet that can weather uncertainty. Next, third quarter fee income as a percentage of revenue was 28.8%. We are particularly proud of this number as it reflects years of focus and investment as we've diversified our revenue stream. Our third quarter fee income was driven by strength across multiple business lines. First, interchange income was $6.4 million, up roughly $500,000 over the second quarter. The team's retention of households and execution through five smaller acquisitions has really borne fruit here. Mortgage gain on sale income was $6.4 million, with a record quarter of $240 million in production. As an aside, 40% of these loans were not sold and remain on our balance sheet. Again, we did no vote our way into this business just over five years ago. Despite lackluster industry-wide small business demand, SBA gain on sale income was $1.4 million, which also contributed to fee income. Despite our smaller size and some of our larger metropolitan markets in which we compete, our 2020 SBA origination performance now ranks us number two in western Pennsylvania and number four in northern Ohio. Also on the fee income front, Trust revenue totaled a record of $2.6 million as well. The third theme is loans. Loans grew $33 million or 2% on a linked quarter basis as the consumer lending business led the way. In commercial lending, however, utilization of lines of credit fell some $55 million from 38% at the end of June to 34% at the end of September. as businesses' investment and working capital utilization has stalled. Our mortgage, branch-based, consumer, and indirect lending businesses have been robust, even as underwriting standards have been tightened. Fourth, the net interest margin contracted about 18 basis points to 3.11% in the third quarter, despite respectable loan growth. and resilient loan spreads, particularly on the consumer side. Net interest income, however, was virtually unchanged, falling only $300,000 to $66.7 million. Excess liquidity and negative replacement yields on loans were the primary drivers of the decrease in NIM. Jim will provide more color here. Fifth, core non-interest expenses were down $63,000 for the quarter, to $52.3 million, even as we continue to invest in our digital platform and tools for our clients. Importantly, the team launched a new digital platform in mid-September called Bano, which replaced both our online banking and mobile banking platforms. The team also completed the conversion of our larger business customers to our new treasury management system. We also added the person-to-person payment option of Zelle. These launches impacted well over 200,000 consumers and small businesses, and by all accounts went smoothly. And with that, I'll turn it over to Jim.