First Commonwealth Financial Corporation

My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the first Commonwealth Financial Corporation fourth quarter 2021 earnings release conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one once again. Thank you, Ryan Thomas, Vice President of Finance and Investor Relations. You may begin your conference.

Thank you, David, 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, Jane Gervance, President and Chief Revenue Officer, and Brian Carrick, our Chief Credit 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've 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 3 of the slide presentation for our descriptions 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. And now I will turn the call over to Mike.

Hey, thank you, Ryan. This past year was another good year for First Commonwealth. So much of what we did sets us up well for 2022. We continued multi-year investments in our core systems and digital technologies, core businesses, fee businesses, new geographies and credit systems, as well as our leadership and line talent. Here are a few of the 2021 highlights. Regarding loans, we had strong growth XPPP of 12% in the second quarter, 8.2% in the third quarter, and 11.2% in the fourth quarter of 2021, and carried good momentum into 2022. Regarding PPP, in two rounds we made 7,400 loans for $845 million and realized some $23.2 million in forgiveness income in 2021. We also picked up a number of new business prospects in each round of PPP lending. On margin, our NIM suffered in this low-rate environment, but our core NIM, net of excess cash and PPP, seems to have bottomed out in the third quarter of last year. Importantly, our loan growth prospects and asset sensitivity position us well for NIM expansion in 2022. Our non-interest or fee income was up appreciably in 2021 to $106.8 million, even as gain on sale of mortgage income fell from $5.2 million from record 2020 levels. Our card-related income grew $4 million to $28 million. Our wealth and insurance businesses were up $2.7 million to $19.6 million. As we segued from PPP activity to traditional SBA lending, our SBA gain on sales business improved $3.1 million to $6.8 million in 2021. We are now the number one SBA lender in Pittsburgh and a top SBA lender in Ohio. And SBA is poised to make an even more meaningful contribution to fee income in 2022. In mortgage, we've built a strong, balanced offering between purchase money, construction, and refinance. It was well-positioned to take advantage of low rates and higher premiums, I might add, in 2020, doing $787 million in production. Given ongoing strength in the purchase money and construction portions of the business, the team had another strong year with $760 million in 2021 production. Mortgage touched over 6,000 households over the last two years, many now using debit cards, HELOCs, checking accounts, and other services with us. Expenses were well controlled from 2020 to 21, even as we added talent in commercial and indirect lending and scaled our risk and governance culture. We also kept up a brisk pace of IT project work each quarter. Also, after years of looking to buy into the equipment finance space, we did a lift-out strategy with a PA-based team from a larger bank. we will see our first originations this quarter in equipment finance. Our actions to close 20% of our branches in 2020 enabled these investments. We also wanted to give you a sampling of record levels of digital engagements. And just to name a few, mobile remote deposit capture items increased 43% in 2021, We now have 50,000-plus mobile wallet users, and we saw a 63% increase in monthly transactions. Overall, active mobile users on our digital platform increased 13.5% in 2021. And lastly, debit card dollar volume increased 14.4% year-over-year. On capital, the team took advantage of excess capital and low stock prices to retire 2.1 million shares in 2021 at an average price of $14.29. And we still grew book value per share by 8% from $7.82 per share at the end of 2021 to $8.43 per share at year-end 2021. On credit, metrics remain strong in the fourth quarter with our ACL salons at 1.35%, with low delinquency and low charge-offs given our business mix. Turning our attention to the fourth quarter, net income of $34.8 million improved $684,000 as compared to the third quarter. Core earnings per share of $0.37. was a penny better as well. Core ROA was a healthy 1.45%, and the pre-tax pre-provision RA was 1.71%. A $2.7 million negative provision expense stemming from low charge-offs or recovery on a previously charged-off loan and reserve reliefs created tailwinds for the quarter-over-quarter comparison. I wanted to add some color to our fourth quarter loan growth of 11.2% XPPP, which really sets us up well for continuing growth. In CNI lending, we were up 26 million to 9.6% annualized to $1.1 billion in footings. I might add our lines of credit on the commercial side at 35% usage of the total facilities are still well below the pre-pandemic levels of 48%, which could provide some 2022 tailwinds that haven't yet. Commercial construction was up some $65 million from a $318 million base in the quarter, so a lot. Our commitments now run over $750 million, and increased construction draws will be a source of 2022 loan growth tailwind. CRE was up 3.4% to $2.3 billion. Residential mortgage was up $53 million or 10.6% to $2 billion. Really a combination of both mortgage and really reinvigorated consumer lending through our branches. Consumer was up $23 million or 9.4% to $1 billion, including $15 million in growth in indirect auto, which had a terrific year. As we look forward, the outlook in each of our geographies and lending disciplines is positive. Taking a step back from the quarter, our three Ohio markets grew loans over 22%. or $500 million for the year. This stems from building out those three smaller acquisitions we did in northern Ohio, Columbus, and Cincinnati from three to six years ago, respectively. All in all, 2021 was a good year for First Commonwealth, and the fourth quarter was another solid quarter. Our team is just as enthused about what lies ahead for our company. With that, I will turn it over to Jim.