First Commonwealth Financial Corporation

Corporation Q4 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, you can press star followed by the number one again. Thank you. I would now like to turn our call over to Ryan Thomas, Vice President of Finance and Investor Relations. Ryan, please go ahead.

Thank you, Aaron, and good afternoon, everyone. Thanks 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 Grabenz, Bank President and Chief Revenue Officer, And pinch-hitting for Brian Carrick this quarter will be our Deputy Chief Credit Officer, Brian Sahaki. 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 the 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 of these measures can be found in the appendix of today's slide presentation. With that, I will turn it over to Mike.

Hey, thanks, Ryan. I will begin with some fourth quarter highlights. We are pleased with our fourth quarter earnings per share of 44 cents with a 1.56% core ROA, a 1.91% core pre-tax pre-provision ROA, and a 53% efficiency ratio. Average deposits for the quarter grew 1.6% annualized, and loans grew at 2.8% annualized. The loan growth was decidedly commercial, with equipment finance leading the way. Our margin fell to 3.65%, lower than we had expected, driven by our customers' expectations on deposit rates in our markets. While we are at always focused on deposit acquisition, were just as focused on deposit retention. Still, our quarter end cost of deposits at 1.65% remained strong relative to peers, and the quarter over quarter increase in the cost of deposits slowed each quarter of 2024. We had a constructive credit quarter with a $1.9 million release of reserves due in part to improvement in qualitative reserves and release of unfunded reserves. Net charge-offs totaled $16.3 million. However, all but $4.4 million had earmarked specific reserves that had been previously provided for. A good portion of the charge-offs were former-centric loans stemming from our acquisition, which closed on January 31, 2023. Essentially, our reserve levels ended the year roughly where they began in January of 2023 at 1.31% of total loans. Our non-performing loans fell $8.5 million to $39.5 million, or 44 basis points of total loans, and are back to where we started the year. With 2023 behind us, let me turn some... some time now over for year-over-year highlights. We made $1.70 in core earnings per share, backing out merger-related items with a core ROA of 1.56%, a 2% core pre-tax pre-provision ROA, a net interest margin of 3.81%, and a 52.91% efficiency ratio. Tailwinds included well-controlled credit expense, organic deposit and loan growth, a bigger balance sheet due to the centric acquisition, and higher interest rates. The latter three tailwinds drove a 24% or $73.6 million increase in net interest income to $386.9 million for the year. Headwinds included markedly higher deposit rates for the year and flat fee income. As we reflect on the year, We had good expense control and drove some additional cost savings through our acquisition, which also helped operating leverage. We grew average deposits for the year at 12.5% and loans at 17.6%. Excluding acquired centric deposit and loans, loans grew at 5.5% and deposits grew at 7.6%. compared to the fourth quarter of 2022. Like many in our industry, our checking and basic savings balances fell, but growth in higher-cost money market and CD balances more than offset the downdraft. However, the lower-cost accounts did not attrite in number, nor did the mix of deposits change meaningfully between the consumer, business, and public funds categories. Also, our business deposits outperformed our expectations. In our regional approach to deposit gathering and lending, we had a good year and carried momentum into 2024 in our three largest regions. Importantly, we navigated our sixth M&A opportunity, which we now call the Capital Region, and are excited about what lies ahead for this market. As we look through the year, And into 2025, thematically, we will wake up every day and think about live the mission every day at all levels of the organization, grow our deposit funding and lending businesses commensurately and at the appropriate spread, improve in every region, line of business, and support unit every year, become digital in every facet of our business, continue to invigorate talent, leadership, and culture, and remain focused on operating leverage and efficiency. We had a strong 2023. We'll continue to build on that success in a few important areas. Three of our regions are performing very well. The three other regions are just beginning to find their stride. Also, as the employment market has cooled some, we're continuing to attract some very talented bankers for key positions. Given our talent, offerings, and leadership, we can grow CNI relationships. We've built solid offerings in our fee businesses and can create partner introductions. And lastly, our business mix drifted towards commercial banking this past year, and we can do an even better job of gathering deposits and getting appropriately compensated for lending activities. The list could be longer, but the point is that effectiveness in the trenches with our core banking is really all about will, and execution, and we're enthused about the opportunity in front of us. Lastly, we continue to build out our core digital capabilities to include back-office efficiencies and customer-focused online and mobile banking enhancements for both consumers and businesses. In 2024, we will allow customers to aggregate their third-party bank accounts on the summary view within their first Commonwealth online banking profile. This complete view of finances across institutions supports our core mission of helping our customers improve their financial lives. And with that, I'll turn it over to Jim.