First Commonwealth Financial Corporation

Good morning. My name is Devin, and I will be your conference operator today. At this time, I would like to welcome everyone to the first Commonwealth Financial Corporation Q4 2022 earnings release conference 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 at any time, again, press star followed by the number one on your telephone keypad. Thank you for your patience. Mr. Ryan Thomas, Vice President of Finance and Investor Relations, you may begin the conference.

Thank you, Devin, 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 Grabentz, 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 three 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 measures can be accessed in the appendix of today's slide presentation. With that, I will turn the call over to Mike.

Hey, thank you, Ryan. We had another very productive year and a good quarter. Fourth quarter, core net income increased 2.4 million over the third quarter to $36.8 million, and fourth quarter core EPS of 39 cents was up two cents per share over the third quarter as well. For the fourth quarter, a $5.7 million increase in net interest income combined with a $1.6 million decrease in non-interest expense to more than offset a $1.6 million decline in non-interest income and a $3.2 million increase in provision expense. Despite higher provisioning due mostly to loan growth, credit trends improved on virtually all fronts for the year and the quarter. In the fourth quarter of 2022, ROA was 1.47%. Core ROA was 1.51%. Core return on tangible common equity was 20.32%. Also, core pre-tax pre-provision ROA was 2.28% and core efficiency was exactly 50%, both records for the company. Core pre-tax pre-provision net revenue of 55.3 million was up by 6.4 million from last quarter, an increase of 13%, and is now approximately 50% higher than it was in the last quarter before the pandemic. These results really speak to the culmination to thoughtfully grow our business over the last few years. And a couple strategies there. We've developed the regional business model. We've added and enhanced customer offerings, things like equipment finance, indirect auto, just to name a few. We've added key talent and leadership, and we've grown our commercial lending teams. We've really increased our digital relevance. So a lot of success there. As we reflect on record profitability, it's clear that our earnings benefited from an expanding margin and strong loan growth. The margin expanded by 23 basis points to 3.99% as our asset sensitive balance sheet responded to Fed rate hikes and new higher rate loans replaced the runoff of lower rate loans. About half of our loan portfolio is variable. So we will still see some benefits of the Fed's December rate and January rate hikes in the ensuing quarters. We expect our net interest margin to expand another 15 basis points in the first quarter, give or take five basis points. Strong loan growth contributed to an increase in spread. Income to $88.3 million in the fourth quarter, up by $5.7 million, or 7%. as compared to the third quarter. The loan growth was fairly evenly split between commercial and consumer categories, with commercial loans growing by 14.6% annualized and consumer loans growing by 17.2% annualized. Equipment finance balances ended the year at approximately $80 million. With equipment finance getting up to speed, we expect loan growth to be around 10% in 2023, which together with our expanding net interest margin should produce strong growth and spread income that will lead to positive operating leverage. After announcing the acquisition of Centric Bank on August 30th, 2022, we received regulatory approval for the transaction in November, and we're pleased to announce that Centric received shareholder approval this morning. As a result, the legal close is scheduled to take place on January 31st. Centric is a commercially oriented franchise in good markets. We expect to push more consumer product through their branch light chassis and increase their commercial lending and deposit gathering activity. We believe that we will achieve the requisite cost saves and meet or exceed the targeted 2023 earnings accretion of eight cents per share. With 2022 in the history books, we can look back on another year of strong performance for First Commonwealth. As I mentioned, we found a terrific partner in Centric with which we can enter the central Pennsylvania market and leap over the $10 billion threshold. We grew spread income by 33.6 million over 2021, but that includes a reduction of 20.5 million in PPP income. which means that ex-PPP, our spread income, grew by $54.1 million. Asset quality measures improved. Fee income was down as expected with the slowdown in mortgage and SBA gains, but increased swap activity helped offset that somewhat, and our SBA and equipment finance originations continue to build momentum. Expenses were up mostly due to inflationary wage pressures, but we achieved positive operating leverage and our efficiency ratio fell. Lastly, I would just add that while the majority of our recent loan growth has occurred in Ohio, our Pennsylvania market is growing as well now and has long been the source of stable, low-cost funding. And with that, I'll turn it over to Jim Rutske, our CFO.