First Commonwealth Financial Corporation

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

Thanks, Operator, and good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation's fourth 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 Grabentz, our 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 during 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 list of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statement. 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.

Thank you, Ryan. And I will begin with the fourth quarter and then reflect on the year and the outlook for 2021. In the fourth quarter, net income of 25.7 million drove earnings per share of 27 cents, beating the consensus estimate of 23 cents per share. Core ROA and the core efficiency ratio were 1.14% and 56% respectively. Our core pre-tax, pre-provision ROA was 1.76% due to an increase in the core net interest margin the 3.29%, and continued strength in non-interest income driven by mortgage, interchange income, wealth management, and SBA. Fourth quarter loan volumes in commercial C&I lending were soft due to lower utilization of lines of credit and some payoffs. This masked the strength we saw in the consumer businesses and resulted in a contraction in the overall loan portfolio, ex-PPP. Expenses for the quarter were up due to higher salaries and benefits, particularly hospitalization expense. Provision expense at $7.7 million included a pass-through item of $3.2 million in unfunded commitment expense. It's important to note that we adopted the CECL methodology for the allowance for credit losses in the fourth quarter. Shifting gears, as we think about the future, we think a lot about our customers' changing behavior. This is why we continue to make significant investments in next generation technology in 2020 with a new online mobile platform, a new treasury management system, 100% issuance of contactless debit and credit cards, and new P2P solutions like Zelle and real-time payments. And we refreshed our digital account opening customer experience with a new mobile responsive design. In a year challenged by a global pandemic, these digital tools enabled our customers to bank when, where, and how they wanted. Here is a sampling of some of the growth and changes we've seen. Debit card interchange income was up 11%, or over $2.3 million year-over-year, driven by robust increase in transactions and dollar volume. New digital deposit account openings were up 189%. Digital customer conversations are up 233% from 2019, This interactive conversation feature available through our new online mobile platform lets customers start conversations with us anytime, day or night. Mobile remote deposit capture users increased 45%. Image deposits at DTMs increased 84%. Virtual meeting collaboration increased 175%. to over 2,600 a month. Our leaders are finding ways to keep our employees engaged with each other and with customers. And then there's our favorable Apple Store rating of 4.8 on our FC mobile banking app. Our customers are telling us what we're doing wrong and what we're doing right with our mobile app, and we listen. We're proud of our progress with our digital strategy over the last several years, and particularly in 2019 and 20. However, we must continue to improve our user experience in digital new account openings across consumer and business banking. Just a few more reflections before I hand it over to Jim Reske, our CFO. On the credit side, we proactively mark our credit early and often while reaching out to our clients in the midst of the pandemic. During 2020 and per page 10, In our supplemental deck, we quickly built our loan loss reserve using qualitative overlays. It now stands at 1.61% of total loans ex-PPP and covers fourth quarter non-performing loans of $54.1 million by 187%, the highest coverage figure for the year. NTLs or non-performing loans is a percentage of loans was 0.80% or 80 basis points, and net charge-offs in 2020 were 27 basis points for the year. You will notice on page 12 of our supplemental deck published this morning an increase in loan deferrals to 1.68% of total loans as of last Friday, January 22nd. On page 13, the increase stems almost entirely from extending deferrals to a handful of hospitality credits totaling $76 million, or 29.6% of that particular portfolio. These types of deferrals are constructive and will enable a handful of our developers through the late innings of this pandemic. These deferrals also tend to come with a quid pro quo. to include increased recourse or another in credit enhancement on a loan. Here again, we feel well positioned with credit in 2021. During 2020, we grew our top line, some $7 million, while our expenses grew only $2 million, net of some restructuring charges. This is yet another year despite formidable interest rate headwinds of positive operating leverage. Our full-year core efficiency ratio fell from 56.97% in 2019 to 56.28% in 2020, indicative of the resolve of the management team. We wielded an internal initiative dubbed Project Thrive to spur revenue growth, improve efficiency, protect margin, and optimize capital. Among dozens of initiatives here, we consolidated some 20% of our branches before year end after starting the process in late March. We also nimbly used the remainder of a previously authorized buyback to purchase 2 million shares at a weighted average of $7.84 per share in the fourth quarter. In 2020, we also had a record year with $94 million in non-interest income as interchange, mortgage, wealth management, and SBA all had record years as well. Non-interest income for the fourth quarter broached 28% of revenues and was 26% for the entire year. XPPP total loans grew $111 million or 2% in 2020 on the backs of strong consumer and mortgage lending and modest growth in small business. This momentum was more than offset by a slight downdraft in CRE lending and a palpable decrease in our CNI portfolio in 2020. Once again, however, our newer Ohio markets found a path for broad-based growth, and they now account for 34% of total loans. We are optimistic about our pipelines in early 2021 and our ability to grow meaningfully in 2021. In 2020, we became better in virtually every aspect of our business, to include each revenue-producing line of business, each geographic region of our company, our fee businesses, our expense focus, our credit, and enterprise risk culture, and lastly, our digital strategy. We are genuinely excited about our prospects for growth in 2021. And with that, I'll turn it over to Jim.