First Commonwealth Financial Corporation

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'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I'd now like to turn the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead.

Thank you, Regina, 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 Sahake, Chief Credit Officer, and Mike McEwen, Chief Lending 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 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 the forward-looking statements disclaimer on page 3 of the slide presentation for a description of risks and uncertainties that could cause actual results that differ materially from those reflected in the forward-looking statements. 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. A 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.

Hey, thank you, Ryan, and good afternoon, everyone. First Commonwealth met consensus estimates with 32 cents of core earnings per share in the first quarter of 2025. Our return on assets of 1.14% in the first quarter was down from 1.23% in the fourth quarter as expenses rose and fee income fell. Loans grew at an annualized rate of 4.4% or $99 million in total. Commercial loans accounted for 63 million or 64% of the overall quarterly increase. Equipment finance and indirect auto lending both contributed meaningfully. The pipeline and growth momentum continue into April. Net interest margin at 3.62% rose eight basis points with good fundamentals. Deposit costs fell to 1.99%. Interestingly, deposit costs continue their downward march even as we grew deposits at an annualized rate of 7.7% using end-of-period figures. As a team, we have remained focused on improving our liquidity as our loan-to-deposit ratio has decreased from 97% to 92% over the last two years. And as Jim will further describe, the NIM should benefit from macro swaps that are coming off throughout the remainder of 2025. Credit is expected to continue to improve, assuming stable economic conditions. Key trends are good, including NPLs, watch, OAEM, substandard, and criticized categories, all of which peaked in the second or third quarter of last year. But they've fallen as we've resolved problem credits throughout the last two quarters. The team continues to closely watch the financial health of consumers, which comprise roughly 68 to 70% of US GDP, about 40% of our lending business. At this time, the first Commonwealth consumers appear to be in good shape. The tariff uncertainty and the prospect of a resurgence of inflation have roiled financial markets over the last several weeks. Importantly, the return of inflation would also further weaken consumers and business households. Fee income was down 1.5 million in the first quarter of 2025. We are encouraged that the $3.5 million hit each quarter to interchange income due to the Durbin Amendment after crossing $10 billion in total assets has largely been absorbed by good momentum with other fee businesses, namely service charges, gain-on-sell businesses, trust, insurance brokerage, and swap income. Our efficiency ratio rose to 59%. up from 56.07% in the fourth quarter. Expenses increased 2.1 million to 71.1 million in the first quarter. Salaries and wages were the primary cause, and more specifically, incentive compensation. Total FTE has also drifted upward as we continue to invest in our regional banking teams alongside our equipment finance group. We view these investments as critical components of becoming the best bank for business. Center Bank will legally close at the end of April and could provide a boost to efficiency and margin. We picked up some good talent and are genuinely excited about the strategic fit that Center Bank brings to a market that is already well led and ripe for growth. The Board of Directors approved the dividend increase of one half of one cent per share consistent with prior years, bringing our dividend yield and payout ratio to approximately 3.5% and 40% respectively. The announcement of tariffs on almost every country has led to uncertainty and the concern that a trade war, if sustained, could lead to disruptions of global supply chains, renewed inflation, and an economic slowdown. We saw initial signs of this strain with the preliminary GDP figures this morning. Our bankers have actively reached out to clients over the last several months to gauge the impact of tariffs on their businesses and identify early signs of stress. Generally, our clients have been less fazed by the administration's actions than we might have initially expected. On balance, while most commercial clients would prefer a more tailored approach, Many believe that tariffs may ultimately benefit their businesses. For example, the steel sector has been a vocal supporter of the tariffs and believes they are necessary to remain competitive. On the flip side, other sectors have expressed concern over the tariffs. These include polymers, manufacturing, aluminum, coal, production, and chemical. A positive reflection is that many businesses have taken steps to secure supply chains and can pass on increased costs through price escalators because of their experience gained during the pandemic. Although tariff uncertainty could create loan growth headwinds, our pipelines remain strong, and we have not identified any specific credit impacts yet. On the regional lending front, our Northern Ohio, Pittsburgh, Central Ohio, Cincinnati, and community PA markets are off to terrific starts. An interesting aside, the country's largest natural gas power plant alongside an AI data center is being constructed in Indiana County, our home county in western Pennsylvania. At 4.5 gigawatts, the plant could power Manhattan and is expected to cost more than $10 billion. And this is from a Wall Street Journal article on April 2nd. These types of projects are springing up throughout our markets, not all $10 billion, but they're creating jobs and revitalizing economies. Good sign and good for our home county. Anyway, with that, I'll turn it over to Jim.