First Commonwealth Financial Corporation

Thank you for standing by and welcome to the first Commonwealth Financial Corporation third quarter 2024 earnings 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. Thank you. I'd now like to turn the call over to Ryan Thomas, Vice President of Finance and Investor Relations. You may begin.

Thanks, Rob. 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, Brian Saaki, Chief Credit Officer, and Mike McKeown, our Chief Lending Officer. As a reminder, a copy of yesterday's earnings relief can be accessed by logging on to FCBanking.com and selecting the Investor Relations link at the top of the page. We have also included a slide presentation on our Investor Relations website with supplemental 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 description of risks and uncertainty 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 the call over to Mike.

Thank you, Ryan, and welcome, everyone. Third quarter, 2024 core earnings per share were $0.31. Loans were essentially flat. Deposits grew, and the net interest margin fell one basis point to 3.56%. as rates declined in anticipation of the Fed rate cut in September. Growth in other fee income offset a $3 million decrease in interchange income as we incurred the long-anticipated impact of Durban. Expenses were elevated primarily due to several one-time items. All of this led to pre-tax, pre-provision ROA of 1.73%, an efficiency ratio of 56.66%, and core pre-tax, pre-provision net revenue of $50.9 million, which was within $1 million of analyst consensus. Turning to credit, the provision expense at $10.6 million was up $2.8 million over the second quarter. Our credit story in the third quarter was largely the tale of four credits. embedded within the elevated provision expense are specific reserves for two legacy loans and two charge-offs related to the centric acquisition now in our capital region. Most, but not all, of the two centric charge-offs had been previously provided for, but they together accounted for approximately $1.5 million of provision expense this quarter on top of to $5.5 million for the two legacy loans. Over the last seven quarters, a disproportionate share of our credit costs have stemmed from our acquisition of Centric that closed in the first quarter of 2023. As we've shared previously, we understood their credit profile going in, so we marked the credit and priced the deal accordingly. However, the acquired portfolio continues to impact our credit performance. For a bank that was 10% of our size, the former-centric loans have accounted for 76% of commercial charge-offs and 51% of total charge-offs in 2023. In 2024 year-to-date, former-centric loans have accounted for 86% of commercial charge-offs and 42% of total charge-offs. At September 30th, criticized loans were 2.68% of total loans. Excluding Centric loans, that ratio would be 1.69%, which is actually an improvement from the 1.72 figure on the day that Centric closed. However, we continue to make substantive progress with Centric credits in the Capital Region each quarter. Also important, Stronger third quarter gain on sale income in SBA alongside increases in service charge and wealth management income and $926,000 in BOLI income all work together to blunt the $3 million impact of having our debit card interchange income cut in half due to the Durbin Amendment. In fact, non-interest income drifted down only $683,000. Looking ahead, we expect non-interest income to be in the $22 to $24 million range in the fourth quarter. Turning now to expenses, we had elevated expenses this quarter of $70.1 million, up $4.3 million over the prior quarter. Third quarter expenses reflect approximately $1.8 million of one-time items, including a $1.1 million operational loss in credit card, and it's $750,000 in severance expense. We expect non-interest expense to be $67 to $68 million in the $67 to $68 million range in the fourth quarter. Beyond the financials, there are a few other items worth mentioning. First, Commonwealth Earned Recognition is the number two SBA lender by dollars in Western Pennsylvania. for the 2024 fiscal year ending in September. As of October 15th, our overall customer satisfaction score and net promoter scores have hit five-year peaks at 90.4 and 70.3, respectively. We've seen a steady trend of increases in these figures since 2020 with both exceeding industry benchmarks. These are important metrics for us especially as we cross $10 billion in assets. Although we are disappointed by our third quarter earnings per share miss, I'm encouraged by the momentum in our businesses and prospects for stronger growth ahead. Despite a relatively healthy level of loan originations this year, our overall loan growth has in some ways been purposely muted by one, our rebuilding of the centric portfolio, two, our strategic decision to reduce exposure to certain sectors like sponsor finance, and three, the shift to selling nearly all of our mortgage originations. More importantly, our regional presidents have a growth mindset, have attracted new commercial banking talent that will drive the bank forward for years to come. Our new capital regions credit performance will converge with the strong credit metrics at First Commonwealth overall and become a key source of future growth in attractive central and eastern PA markets. And with that, I'll turn it over to Jim Reske. Jim?