First Commonwealth Financial Corporation

Ladies and gentlemen, thank you for standing by. My name is Desiree and I will be your conference operator for today. At this time, I would like to welcome everyone to the first Commonwealth Financial Corporation first quarter 2024 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, again, press the star one. I would now like to turn the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead.

Thank you, Desiree, 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 Reske, Chief Financial Officer, Jane Grabenz, Bank President and Chief Revenue Officer, Brian Karup, our Chief Revenue Officer, and Mike McKeown, our Corporate Banking Executive. As a reminder, a copy of yesterday's earnings release can be accessed by logging on to sdbanking.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 could 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.

Thank you, Ryan, and welcome, everyone. Despite pressure on the net interest margin through higher depository costs, First Commonwealth beat consensus earning estimates by one penny with 37 cents per share in the first quarter of 2024. Core ROA and the efficiency ratio were 1.31% and 55.05% respectively. The bank set a number of earnings records in 2023 and had a particularly strong fourth quarter. That was certainly worth celebrating, but it affects most of the period over period comparisons. For example, In the fourth quarter of 2023, we had negative provision expense of $1.9 million due to the release of reserves. This quarter provision expense was a more typical $4.2 million. That swing strongly affected quarter-over-quarter comparisons of financial metrics like core EPS, return on assets, and return on tangible common equities. In addition, interest expense increased by $4.6 million over the last quarter, overwhelming the $1.2 million increase in interest income and resulting in a $3.4 million decline in net interest income. As a result, the core non-GAAP measures that we report on a pre-provision basis, such as core pre-tax pre-provision net revenue, In core pre-tax, pre-provision ROAs, they also declined from last quarter. Importantly, balance sheet liquidity strengthened as our loan-to-deposit ratio fell from 97.9% at year-end to 95.6% at the end of the first quarter. End-of-period deposits increased over $254 million, or 11%. 0.1% annualized, while loans increased just 1.5% annualized, or $33 million. Consumer CDs constituted the bulk of deposit growth, primarily from our core consumer customers, while business deposits fell due to seasonal factors. We've begun to taper CD pricing based on first quarter growth and market conditions, and we'll continue to watch competitor rates and consumer behavior. Loan growth for the quarter may appear to be on the low side for us, but it's very much in line with our long-term plan to tilt the balance sheet more towards commercial lending. Commercial loans grew at an annualized rate of 5.24%, right in line with our long-term mid-single digits guidance. That commercial growth offset declines in consumer real estate balances. And the movement in consumer balances is no surprise. We're now selling over 90% of our mortgage originations, including mortgage construction loans. And in fact, mortgage gain on sale fee income increased over last quarter. Second, lean products like HELOCs and HELONs are naturally down because of the rate environment and also because a lot of those balances were driven by refi activity during the pandemic. And the auto book is replacing runoff and nicely pricing upward exactly as planned. Overall, we see the diversification of our loan portfolio as one of our key strengths and slow growth or even modest decline in consumer balances in any given quarter provide us with the liquidity and capital to grow commercial loans and maintain our current mid-single digits guidance. As we execute regionally and profitably grow core deposits, loans, fee income, then we will grow meaningfully in the years ahead. Becoming the best bank for businesses and their owners will be a big part of that growth. The Capitol, Columbus, and Cincinnati regions present significant opportunities for growth at First Commonwealth. Our branch and business-based deposit gathering efforts have also led to our low-cost funding advantage. With mild loan growth, it might appear from the outside like this was an uneventful quarter for us, but nothing could be further from the truth. We've made a number of internal management changes to maintain our momentum and ensure our success. Since hiring a new chief lending officer last September, we have made a concerted effort to upgrade regional leadership, create more enduring operational scalability, and improve our CNI expertise. Some recent actions include naming new regional presidents in Pittsburgh and Cincinnati, new leadership in the Harrisburg region, and a new head of corporate banking portfolio management and commercial loan documentation. We've also hired five new commercial bankers during this same period. As we like to say, we always keep our feet moving. In other words, we actively cultivate relationships a culture of continual transformation and improvement so that we can produce steadily improving financial results year in and year out. And with that, I'll turn it over to Jim, our CFO.