First Commonwealth Financial Corporation

Ladies and gentlemen, good afternoon. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the first Commonwealth Financial Corporation's first quarter 2023 earnings release conference call. Today's conference is being recorded and 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 the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one once again. Thank you, and I will now turn the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. You may begin.

Thank you, Abby, and good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation's first quarter financial results. Participating on today's call will be Mike Price, President and CEO, Jim Refke, Chief Financial Officer, Jane Gravince, 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, we 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'll turn it over to Mike.

Hey, thank you, Ryan, and good afternoon, everyone. We are pleased with our results in a tumultuous quarter for the industry. Core earnings per share beat consensus by six cents Our NIM expanded, we had record net interest income, and we grew deposits much faster than loans, bringing down our loan-to-deposit ratio. In short, we worked our way through the first quarter by focusing intently on deposit gathering and retention while taking a measured approach to loan growth. Core earnings per share, which adjusts for one-time merger expenses, and the day one CECL provision associated with our acquisition of Centric was 45 cents in the first quarter. Core return on assets of 1.75% was up from 1.51% last quarter, reflecting the benefit of lower provision expense, while core pre-tax, pre-provision ROA of 2.11% was down from 2.28% last quarter. The NIM expanded by two basis points, the 4.01%, and the net interest income was up by $6.3 million over the last quarter. Non-interest income declined and expenses rose, contributing to an efficiency ratio that at 52.41% was slightly elevated from last quarter's 50%. The first quarter was an eventful one for us. We successfully closed and converted Centric Bank during the quarter. The legal close took place on January 31st, and the conversion occurred over the last weekend in February. I'm deeply grateful for all of the team members on both sides of this integration who worked to make this come together as smoothly as it did. We are bullish on the demographics of the region, which includes Harrisburg, Lancaster, and the Philadelphia suburbs of Devon and Doylestown. We're also pleased with the former-centric team that joined First Commonwealth in as they have added to our line and back office strength. The events of the first quarter in the banking industry put a spotlight on community banks like First Commonwealth that have diverse and granular deposit portfolios and ample access to liquidity. Looking back to the middle of last year before deposit competition began in earnest, our cost of deposits was one of the best of any financial institution in the country. And our time deposit book had been consciously reduced to less than 5% of total deposits. Furthermore, our deposit composition has for some time been balanced between urban and rural and business and consumer with a relatively large proportion of transaction accounts. As the events of the first quarter unfolded, we saw renewed interest in the composition of that deposit base. I would direct your attention to new disclosures on pages 13 through 17 in the accompanying slide deck. For example, as of the end of the first quarter, our uninsured deposits comprised only 27% of total deposits, and our total uninsured unsecured deposits amounted to only 17% of total deposits. Our average deposit size of $19,426 speaks to the granularity of our deposit base. and that figure is for all deposits. Consumer deposits represent 58% of our deposits, and the average consumer deposit is $12,726, while the average consumer checking account is $7,900. No one private sector industry represents more than 3% of our deposits. Approximately 98.2% of our deposits are less than $250,000 and 94% are less than $100,000. We refrained from certain deposit gathering strategies in the fourth quarter in a conscious effort to keep our total assets below $10 billion at quarter end. However, we have always been and continue to be focused on gathering new checking households and acting as the primary depository for our customers. At year end in 2022, our total assets were $9.8 billion, and we pivoted once again to broader deposit gathering. The results demonstrate the fruit of our efforts as average deposits grew 13.8% annualized, outstripping measured loan growth of 3.43% for the quarter, bringing down our loan-to-deposit ratio from 95.6% 93.9%. First quarter growth excludes Centric in the impact of purchase accounting marks as consumer loan categories led the way. We now expect to see mid single-digit loan growth through the end of the year. In light of our continued ability to generate excess or capital in excess of what is needed to fund organic loan growth, we're pleased to announce that we have raised the dividend and obtained an additional $25 million of share repurchase authorization from our board. Our digital platform continues to show impressive growth, particularly around customer engagement. We're now averaging over 210,000 average daily logins, a 24% year-over-year increase. This equates to approximately 1.2 logins per active user per day. As we look to the remainder of 2023 and into 2024, we will remain relentlessly focused on gathering and retaining core deposits. We will realize the benefits of the Centric acquisition and begin to grow. We will grow our CNI business through our regional business model. And with that, I'll turn it over to Jim Ruskie, our CFO. Jim?