First Commonwealth Financial Corporation

good afternoon my name is emma and i will be your conference operator today at this time i would like to welcome everyone to the first commonwealth financial corporation second quarter 2022 earnings call 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 would like to ask a question during this time simply press star followed by the number one on your telephone keypad If you would like to withdraw your question, again, press the star 1. Thank you. Ryan Thomas, Vice President of Finance and Investor Relations, you may begin your conference.

Thank you, Emma, and good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation's second quarter financial results. Participating on today's call will be Mike Price, President and CEO, Jim Reske, Chief Financial Officer, Jane Gerbentz, Bank President and Chief Revenue Officer, and Brian Karup, our Chief Credit Officer. As a reminder, a copy of yesterday's earnings release can be accessed by logging on to fdbanking.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 3 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 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. 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, thank you, Ryan, and welcome, everyone. Net income of $30.8 million produced core earnings per share of $0.33 for the second quarter of 2022, which was up by $0.04 over the first quarter. Robust annualized loan growth of 10.8% XPPP coupled with net interest margin expansion to 3.38% helped drive a $5.5 million improvement in net interest income to $73.7 million and a $5.8 million improvement in core pre-tax, pre-provision net revenue to $42.5 million in the second quarter. And that's despite a $1.2 million decline in PPP income. Non-interest or fee income was up $535,000 in the second quarter to $24.5 million, as increases in swap, interchange income, and mortgage were offset by a downdraft in SBA gain on sale income. Expenses were essentially flat, and the efficiency ratio fell to 55.87%. Core pre-tax, pre-provision ROA was 1.77%. Over the last four quarters, our loans, XPPP, have grown consistently at 10.8% in Q2 and 8.8% in Q1 of 2022 and 11.2% in Q4 and 8.2% in Q3 of 2021. Given our recent track record of loan growth, we remain confident that we can maintain momentum for the second half of 2022 consistent with a high single-digit growth target. Both our consumer and commercial lending businesses, as well as the five regions of our bank, have all contributed significantly to our loan growth trajectory. The consumer lending categories have led the way in the first half of 2022, whereas we expect that commercial lending growth will pick up in the second half of 2022 like last year. Commercial lending benefited from increased CNI line utilization, which grew to 43.5% in the second quarter, up from 35.9% at year end. It bears repeating that mortgage indirect, small business, and now equipment finance were not meaningful in our repertoire of lending solutions just five to six years ago. We continue to build momentum in equipment finance, ending the quarter with $21 million in footings. As we look to the second half of 2022, we now project to end the year with approximately half the footings we had earlier projected, but that's more indicative of technology headwinds and project headwinds. than any change in strategy or our long-term outlook. The broadening of our revenue base into different lines of business has occurred with our non-interest for fee income as well. Although more normalized mortgage volumes have led to a decrease in gain in sale income over the last year, mortgage origination volume was actually up slightly in the second quarter compared to last quarter, leading to a $300,000 pickup to $1.6 million. in mortgage gain on sale income. SBA origination volumes remain brisk through two quarters in 2022. We've already closed $63 million in SBA loans, up from $35 million for the same period last year. SBA gain on sale income, however, was down from $2.2 million in the first quarter to $800,000 in the second quarter, which we see as a bit of an aberration. Elongated construction timelines and supply chain challenges have delayed the realization of gain on sale income, even for closed loads. Consequently, in the first half of 2022, we've realized only $2.9 million in gain in sale income. We expect the run rate of SBA gain on sale income to return to our expected run rate of $2 to $2.5 million per quarter in the second half. On the liability side of the balance sheet, our average deposits grew 6.7% annualized in the second quarter, even as our overall cost of total deposits stayed anchored at four basis points. Our average non-interest bearing checking deposit balances grew 10% annualized during the second quarter. It also bears repeating that our depository is comprised of 34% non-interest-bearing checking accounts of which 66% are businesses. Over half of our $8 billion depository is in checking accounts with only 5% in the time deposit category. Our depository should remain a source of strategic advantage, particularly in a rising rate environment, as well as a source of solid interchange and other fee income. On the credit side, charge-offs remain low, at nine basis points annualized, and our provision expense of $4.1 million added $2.4 million to reserves that now stand at 1.31% of total loans. Our NPLs fell to $35.7 million, or just 50 basis points of total loans, while NPAs to assets now stand at 38 basis points. Our criticized and classified loans are at the lowest level levels in years. Turning to several digital tools, of our 280,000 checking accounts, we now have over 13% penetration with Zelle and over 70% penetration of our digital, mobile, and online banking platform, which is up from 51% pre-pandemic. We also have over 165,000 average logins per day, which is over double our pre-pandemic level. In addition, our secured conversations pool makes digital interaction personal and on-demand for our consumers. At this pace, our digital interactions through our engagement center will surpass calls into our engagement center in the next year. In addition, we have seen our TM services, treasury management, such as ACH, positive pay, and remote deposit capture increasing significantly over the past year. few years as we have upgraded and enhanced these tools for our businesses. It's also added to fee income. With our new credit card platform, we are now focused on the next generation of business and consumer credit cards, including full integration with our mobile and online banking. Our digital interactions now account for approximately 86% of our overall customer interactions, with the remaining 14% coming from branch, ATM, and engagement center calls. With that, I'll turn it over to Jim Refke, our CFO.