First Commonwealth Financial Corporation

Good afternoon, my name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the first Commonwealth Financial Corporation Q3 2022 earnings conference call and webcast. 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 star, then the number one on your telephone keypad. To withdraw your question, press star one again. Thank you. Ryan Thomas, Vice President of Finance and Investor Relations. You may begin.

Thank you, Chris, and 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, Jane Grabenz, 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 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 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 a 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, thanks, Ryan, and good afternoon, everyone. Net income of $34 million increased $3.2 million over the second quarter on the heels of significant improvement in net interest income and better fee income, partially offset by pressure on non-interest expense and an uptick in provision expense. Our pre-provision net revenue of $48.9 million was strong and produced a core pre-tax pre-provision ROA of 2.03%. And our core ROA in the first quarter was 1.43%. Key elements of the quarter follow. Strong loan growth of 3.3% annualized. coupled with the burgeoning net interest margin of 3.76%, propelled an $8.7 million increase in net interest income to a record third quarter figure of $82.6 million. Growth was again broad-based, with commercial lending leading the way, followed closely by indirect lending and mortgage. All of our regions are reporting healthy pipelines in both our consumer and commercial lending businesses. Our strong core depository was especially valuable in maintaining a low cost of funds, further supporting margin expansion as our cost of deposits only increased by one basis point. Between now and year end, higher rates will result in more muted fourth quarter loan growth and bring the figure to, we project, mid-single digit guidance. Non-interest income rose $1.4 million to $25.9 million in the third quarter, as swap income and commercial lending hit record levels. SBA gain on sale picked up steam as well. Third quarter non-interest expense rose $3.6 million. It was a function of investments in talent and technology, broad inflationary pressure on salaries, and a handful of one-time items. However, the core efficiency ratio still fell to 54.06% due to the aforementioned growth of top line revenue. Third quarter provision expense of $5.9 million was up over the second quarter even as overall credit quality remained sound. For example, commercial 30-day plus delinquency was only two basis points down from an already low four basis points last quarter. Non-performing loans at $35 million or 48 basis points of total loans were down from last quarter as well. Looking forward, a broad base of both margin and fee businesses coupled with a philosophy of continual improvement should translate into continued growth. We've built a well-diversified bank that we feel will do well in multiple interest rate and economic scenarios. This is why we've strived for balance in the composition of our lending book with 47% of outstandings in consumer loans at quarter end and 53% in commercial categories. Intentionally and organically, we've moved towards balance in our loan portfolio starting at least five years ago to the point where we now have roughly 50% in variable rate loans and 50% of our loans in fixed rates. We've also methodically built sources of fee income that peaked at nearly 30% of revenue several quarters ago through meticulous execution in mortgage, SBA, wealth management, and other fee businesses. Coupled with sound credit, we've built the bank to thrive in good and tougher times. We will remain focused on what we can control. We strive to get better in each of our businesses and regions with better talent and processes every quarter, regardless of the external environment. We are also excited about our 2023 growth prospects with Centric, SBA, Equipment Finance, and continuing growth through our regional business model, to name just a few. As we look forward to 2023, the emerging strategic themes will likely be largely unchanged from 2022, which are as follows. First, improve and grow our lending, depository, and fee businesses in each region of our companies. Second, increase digital relevance. Third, maintain operating leverage. Fourth, strengthen our culture, leadership, and talent. And fifth, improve brand awareness. For now, I'll just focus on one of those themes, increasing digital relevance. We continue to be pleased with the adoption of our digital banking platforms. In total, for the quarter, we experienced an 11.5% annualized increase in active mobile users. Importantly, our customers continue to show high engagement with our digital tools with average logins per user per day at 1.07 times. That's year to date, which is up 12% year over year. With this strong use of the platform, we continue to make investments to bring more features to our customers. This centric acquisition is proceeding well. in large part due to good dialogue between the leadership teams of both organizations. We still intend to close the transaction on January 1st as planned, subject to pending regulatory approvals. Finally, we are pleased to see that First Commons Commonwealth earned the designation as the number one SBA lender in Western PA and number two in Pennsylvania. With that, I'll turn it over to Jim Reske, our CFO.