FCF - Earnings call transcript Q3 2018 | First Commonwealth Financial Corporation

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Operator

Good day, and welcome to the First Commonwealth Financial Corporation Third Quarter Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead, sir.

Ryan M. Thomas

Thank you, Rocco.

of copy on earnings the to link the a accessed can Investor reminder, at logging by fcbanking.com top a of release today's be Relations As page. the and selecting supplemental a included referenced our page, may presentation We've financial call. also that slide information today's Investor on Relations with throughout be room and Mike Financial in Price, Jim and With Chief Corporation; CEO Officer. Executive and the Reske, me President President today are Vice Financial Commonwealth of First call management, we questions. will After to brief phone your the comments from open

For President that Officer. call, Treasury Mark the our we will Grebenc, Chief and be Jane Chief portion of Commonwealth Karrip, joined Revenue of Brian Officer; our by Officer Bank; Credit and Chief Lopushansky, First

to principles. addition reconciliation of measures prepared turn of today's will accordance in for, now disclaimer actual contain like also accounting forward-looking call differ of statements. to financial be those begin, And generally viewed I'd our Page a our presentation not that refer will XX on could operating forward-looking would cause non-GAAP results non-GAAP Today's in statements. to Before be the and caution can found we measures. listeners call I Non-GAAP Please on statements of to and to accepted an financial reported call as uncertainties GAAP should results of include description Price. measures Page to, for with reflected alternative A Mike top forward-looking to like the X slide risks in slide the presentation. over from that conference materially this

Thomas Michael Price

on and produced of $X.XX, the XXXX, item is $XX.X indicator. and for income of of in in year-to-date every assets to impressively period Ryan. return performance performance same XX.X%. financial September, XXXX of virtually share per ratio through as X.X% the million Thank up you, line efficiency a key earnings quarter compared Net third

the further Reske financial few brief million. pre-tax quarter So thoughts income to picture, in third elaborate on include a a net will $XXX.X the on Jim XX% increase with follow.

items the X.XX%, another quarter. quarter the and point and to dropped a Although XX% of last improved the margin At the is environment. one-time both we bank categories stated Jim production interest net $X same corporate XXXX. remain illuminated quarter, buoyant growth. record Reske the rising easily time, Loan will in quarter-over-quarter betas, up the prior third we Deposit levels that will margin expect in that billion from good top had deposit in a at the consumer rate interest in quarter

appreciably, commercial to eager year. Private they up, activities loan loan corporate estate finding in in commercial are put work payoffs clients our ticked C&I M&A largely new ownership to capital for organic activity real up resulting has growth modest and the equity resulting several firms portfolios. to are However, These commercial and both payoffs in attributed are structures.

certainly the recent years, in it commercial with deposit growth I last to Ohio be has smaller our segments loan these saw end years, also net markets. four area in and Cincinnati in to way bank and business-friendly, in see be markets the has northern now pleased quarter, our our By pleased a payoffs size. which us and having back acquisitions completed deposit large community-focused more lower receptive our come of Ohio, quarter. are geography, in X our retention commercial growth this of this new This this banking curtailed While for to team of focus very for an came of markets volume most By very proven initial Ohio, the segments. was the and business of Columbus seeing we're loan particularly and the and our small traction and granular we're with to for we been encouraging able are

market Our community well. resilient has growing and been Pennsylvania as

First of geographies funding of of from some been very deposits through Commonwealth loyal. economic this where towns our low-cost are has expansion, in XX% depository smaller have consider comprised source which nice core rural is customers banks a community core provided PA market,

is fact, single-deposit largest in checking In relatively XX%, noninterest-bearing percentage A accounts. company. large deposits from the this are market we're of at the

team bank deposit a price size. with customer only elasticity which feed The Our limits. and our positioning a with will a that strong XX% with CDs, products, bank time FCB deposit categories, has and deposits clinical for customer it's checking with XX% customer-friendly nickel loyalty million commercial Commonwealth and building categories. with we noninterest-bearing specials have is of pricing our low business of so has not in maintains working-class $XXX base, in And is of depository a retention. dime our test in believe predominantly often volume First

consumers turn granular over and side areas the the Continuing years. lives lower-risk we're of strong needs to As is, businesses. their of will last our business mission be funding, five per trajectory households of our on the to put that to the Delivering the building contribute continuing together core younger outcomes. team I accustomed earnings become it equation; neighbors three-years four more financial of that contingent portfolio; high-yielding, the have Jim. to I'll and a growth that, on our of to loan a plan, continuing to meaningfully over to our and meet which building capabilities investors improve competitive focused customers With business build financial focus our digital and particularly share

James R. Reske

in Thanks, summary additional the quarterly our focus Mike. stock will Mike my margin to so on buyback. provide of brief provided trying announced remarks has earnings, the already clarity on

in margin was X.XX%. quarter third the interest net Our

in that basis our call previously basis stated In NIM X and the to contracted second items. balance we X.XX% margin on balance sheet NIM whether by benefited we That we a As earnings it guidance quarter of steady of last worth sheet, is unusual our on Since release, NIM progression that on our quarter's believe of asset-sensitive by face, is a our for slow, begs short, points. as course, be. yes. based answer question previous explained points of was two asset-sensitive its the implies expected

quarter, the only is NIM quarter As three a subordinated points. on and the was drag we described that so basis we partial sub-debt debt only issued outstanding for last the for net last quarter

drag quarter, basis This net three that was points, so NIM the six of compression. accounts points for basis

acquisitions point In for of together disclosed, accretable basis approximately basis NIM items the previously quarter. as four addition, of two benefit previous yield from accounts of points a one out These rate compression. at every phases

schedule. moderate impact sheet capital to that pointing to guidance yield X.XX% the There to other fade of quarterly quarter our light one-time rest out experienced So in two two the that developments and balance items quarter, actually out. we that aggregate on that the these decision, remains decompression the expanded reiterate by the points But of margin in in sheet with the means points basis basis for X.XX% the since encouraging our of the of asset-sensitive, the and in will NIM the is third worth continue margin past are sub-debt regard To two in clear, the expansion of items The guidance with stable are expansion. of a we adjusted away. balance relatively quarter, do strategic consistent be accretable previous that be abundantly things and range. can rest which our long-term NIM of two NIM was not several these were constitute moderate

First, only in put at quarter. deposit points were our funds by that sort increases rate from the didn't to quarter increases to points, into the of beta that XX see for basis of is ensuing the second to of consistent rates such in rate second public the a constituted basis of deposits some catch cost place rose a the guidance were previous quarter-on-quarter XX and in interest-bearing five up equating non-maturity deposit points, we in continue our This XX% expect basis of quarter.

during accounts far, the non-maturity Fed's XX in cost points to increased only through cycle only rate the basis basis from XXXX XX deposit by so XX of in through of so tightening the target total, has funds cumulative points That beta the has by which the a Second, Fed this quarter to fourth XX%. basis basis a of far quarter cycle equates increased period, XXX points. interest-bearing points

has Third, by drive balance quarter. $XX.X to this million the sheet which deposits, in noninterest-bearing commercial NIM grew to continued growth our

deposits loan and pace positive yields finally, fact, quarter. In to equation, total of XX in the cost And four our yields is replacing by deposits of by increased the cost basis continued quarter. driven points category include only those exceeding you increased in nearly in loan when the the This in by deposits. third the quarter, basis every in points the growth

significant margin, million share quarter Beyond $XX of the item a is this the authorization. repurchase announcement the other financial

ratio resulted was at – Our our quarter. growing the growing that such significant in generation, equity share has our end capital third the tangible earnings power common per earnings X.X% of

a manage to is that is underleveraged way the undercapitalized. such philosophy bank capital neither Our in capital nor

to into do in capital Our organic continue deploy acquisitions or past preference the excess to always growth in we've so will future. and done so and the is accretive

with an to year-over-year yield deploy come. to a mindful shareholders. view position with peers in many excess we ratio buyback range an payout in We to our Along the acceptable are also steady hope our to keeping be dividends, way maintain commencing dividend for and years and dividend efficient as to capital increases

and making ratio ratio of issuance the an risk-based September of equity common increase at in year stock into range. contributed acceptable to ability tangible possible our earlier to to flexibility giving an us the and manage the capital this subordinated Fortunately, XXth, total common repurchase debt XX.X% our

program But even And any program timing this the trading would you in in depend completing will stock could persists, our take fourth have. may we Finally, the next ordinarily, of If of the range to quarter today on few this the the program movements have that, expected complete will with we questions over year. quarters. price. we see our repurchase

Thomas Michael Price

operator? [Indiscernible],

Operator

Yes, sir.

from begin question-and-answer ahead. Today's go FBR. B. now of Steve will Please Instructions] [Operator question Moss comes We the first Riley session.

Zach Weiss

actually filling by Steve Zach Hi, for everybody. in today. taking good question. for This Weiss afternoon Thanks is

the So of quick the decision just tree the opposed talk just that if curious for on saving of the about buyback choosing follow-up as dividend capital M&A? or could on all about rationale ultimately decision, I'm you to thinking there kind buyback

Thomas Michael Price

at Mike just Yes. -- probably done minimally want so is value or this accretion to book is and been needs I test opportunities may capital careful. our very other high to for be that episodic. earnings We've Price, us something they're dozen pretty and comments? four, available, tangible mean, two and being put of may M&A in been and are there not thoughtful dilutive work. looked just litmus Jim, and terms -- the to We've we

James R. Reske

capital inorganic you if And growth look we Yes. Thanks the for have through we the then acquisitions that off and had share question. we have at as we do available. preferred buyback buybacks. and to then to to divested Historically, that deploy opportunity opposed rates the started it the buying shares shut acquire authorized, that first and quickly program that authorized back became last when

arise, capital opportunities we deploy those when way. that to So prefer

excess opportunistically, this we go capital date as at some to authorization really decision have part and So price like and price. stock today, and of to well a in in is is deploy place a return reasonable shares for an can back decision

Zach Weiss

Okay. That's helpful.

Thomas Michael Price

a be payout to tended being higher committed That to that we've of in we're ratio dividend or said, that's last so. probably five end on over still years the the range the range,

Zach Weiss

it. expenses, just think quarter fourth should in into And we of that there. about Got XXXX? context how heading That's terms into helpful and the then, curious

Thomas Michael Price

is this -- Mike. We

unusual from years extraordinarily time a and just We efficiency in cycle. mindful We'll have of and beginning one let And there's last there have or six three-year you I'll over Jim, I moved explain to and that our this leverage. that's item think Cincinnati period, been the five added and we we're be planning year. XX expenses mindful of XX bit very operating a it. there's

James R. Reske

Yes.

few and A mortgage we it's So that. where the our recent ago, mentioned should expense, XXXX bear getting in program. out business bit. had just been me clarifying. a We ramping point mortgage we to And this originations. hedging mortgage the mortgage spelling relates It pipeline and but in felt our hedging speed back since. that to relatively to catch getting it's in really just earnings portfolio banking think reached have up our and a for up worth quarters a production got clarify little with and fairly I up worth release, still it's steadily be to program ever originations is hedging We mortgage related moment probably a

both line that in swing represents So third the program what volatility you saw in linked expense million the quarter pipeline net was combination gain the program would quarter has actually value perspective, track. hedging but that that that value a in to programs mortgage remains hedges. of whole see a at think actually so believe the case on only the from an I accounting the stop. of the of bank of that of to quarter, for pipeline and the expect $X.X that loss and quarter, is changes the hedging you is any might program. second From early that item the kind reflects unsolved and we for a unfortunate, $XX,XXX, mortgage the related Year-to-date, is the the a days

just or committed it quarter. question we belief, core efficiency the lower. our To affected the of that at comparison portion the a and So of unusual items get about remained your ratio for XX% expense to expenses

efficiency ratio our are realizing little we [indiscernible] quarter, bit sub-XX% So in a remains goal. the but a

Thomas Michael Price

for the question. Thanks

Zach Weiss

much. Yeah, thank you very

Operator

today ahead. question next our Gunther Russell Please from of Davidson. go comes And

Russell Gunther

guys. Hey, good afternoon

Thomas Michael Price

Good afternoon.

Russell Gunther

to here. with wanted growth I loan some start questions

your Just that the do mentioned in the fourth look but thoughts heading face headwinds? would what record think the some into about how pay-down give you quarter, like pipeline, pull-through us you of

Thomas Michael Price

I think has digits. historically mid-single our been guidance

think commercial up solutions to in the traction a for pass in about $X.X million loan We're will call commercial group seeing nice we dollars. come for I that million segment, the that particularly year. dollars to several hopefully

loans. happening are payoffs much Our larger with

have business. small We some in also momentum nice

branch the our mortgage and really has Our turned and corners. lending consumer

in or So also the been look next of that's we we might like quarters our what see a pretty newer We're pleasing. in as nice pattern we markets four growth seeing out. five

Russell Gunther

on the auto for touch specifically? guys expectations portfolios you can then And

Thomas Michael Price

part anything, and to focus Yes. The the volume better If get in has up, four probably really a of five two this margin years. auto really last range the portfolio of ours. three or the that's hovered been or pointed the we've of for over sacrificed portfolio years,

$XX grown the have or might it million think $XX last in I million quarter.

the a portfolio been for cycle. pretty So us clean decade last also even that's the over really, last through

with predominantly Pennsylvania haven't core So customer. really concerns had we credit our Western

James R. Reske

And of then it's high-growth mode, to mode. in loan the ask -- contributor it's balance lot also will we that in a be Yes. a terms not but percentage, stability, portfolio hope targeted it one-off in growth

just more this quarter communicates we growth little of saw Some we portfolio we actually in power thought. the than have recent that pricing have that a

Russell Gunther

XXX margin baked guys flush the that in to a Okay. to, appreciate gears us guidance, And to could Great. recommitting I for sort range there. color XXX there the just out just switching is rate from you of are what you perspective?

James R. Reske

Yes.

fourth from we seeing a also Our in it's call that forecast, latest for forecast, actually not that purchase rate odds figures the be an outside vendor, hike we there's happen, But so rate market in to there. X.XX does although would accretive hikes the year. we quarter, seems rate next pretty are pretty

Russell Gunther

tax and here, your rate? for And you. of Thank fourth just me, the the last extent Great. for bit it's for one XXXX quarter ticky-tacky Okay. a question then a on to outlook could expectations just you the

James R. Reske

tax don't next very particularly we bit year. effective a change rate much quarter Fourth the expect was that we and XX.X%,

Russell Gunther

so my That's Thanks Great. me. questions. for taking for Okay. it much

James R. Reske

you. Thank

Operator

next question Please Collyn our of Gilbert And KBW. from go comes ahead. today

Collyn Gilbert

Thanks. Good afternoon, guys.

Thomas Michael Price

Good afternoon.

Collyn Gilbert

-- to guidance 'XX? back NIM that to just for full clarify, of that's the Jim, the is NIM XXX fourth to Just XXX, for quarter year that I for or the that's want your

James R. Reske

the foreseeable That's for and quarter future. the fourth

outside going update that our in So we next guidance it call. the as range, update quarter, it's see we just every because I'll

Collyn Gilbert

within big more you I the you franchise, legacy variances seeing the are seeing, still early -- foundation of franchise, And the you. versus just just are what then kind into guys Okay. any just there? but foundation Got it's broadly, they're know and how betas

Thomas Michael Price

strategy, There's deposit a a bit little higher little rate. different

our which market nothing Really cost and savings, of points seven just in feel Page on black commercial we're the of our which DDA for are cost deposits higher a just lot chasing of We a about at now cost deck, supplemental disciplined at basis really small look didn’t the Central you XX line, rates. Ohio the linked a not there. in or if money Northern with of a But total the Central a company. although years depository, XX,XX just piece about and is quarters and CDs anticipate time, nice of noninterest-bearing. the have either in -- interest-bearing we there for like Ohio Collyn, of and the present is us we with We're the in undue However, been on going XX% business foundation same. we've of as position two Ohio, noninterest-bearing

Collyn Gilbert

or helpful. migrating for I'm seeing again side be on on That's then, may we're or okay. reserves How seeing Okay, And purging? you're now guessing, outlook in you thoughts credit things or with perhaps, change how foundation fold. Jim, any the future any the your

James R. Reske

Not fairly credit a it's quarter. particularly. I ordinary thought

We are over that quarter. the actually pleased all asset of quality improved metrics the very most

trend nothing I if So you that. that's Mike, part of that's very want a anything but helpful, long-term in particular. to don't to add feel

Thomas Michael Price

think We're the at first just what or really for commercial we're important working And have down it, replace just chunkier taking with you we're came now I and them this and volatility since they through will peak team. larger maybe the of them really credit do acquainted I with small out that's management that of probably direct XX% taken XX% more were focused, certainly the cycle think and credits, next pretense picture. lending how on to Collyn well the us. solutions, business, to

asked a In Board topic Credit present us. very of will all terrific for has on our our to be telltale to task Officer that Chief a him done and we've fact, job regularly that and

Collyn Gilbert

I'm what what curious that think sort targets there sort of or we just look kind to you you guys at for you're earnings then, of else of you to of helpful. of year growth? XXXX? on saying, perhaps kind are target. anything the that Is looks that you if it really a there thing for Jim, XX% targets. more given mean, offsets if XXXX. flow one Okay, you a some can anticipating through I as earnings okay. certain That's final flat in that's just of offer some reaccelerate ratio like can efficiency you continued lower of market there indicated just dynamics, are And know us sort the I

James R. Reske

we sense, No. tradition tell the I the start is guidance, I'll specific year. the a by guidance of kind a a the it's lot think, category. of think the a company I'll guess we we We general steady category call, always a not in little lot of But which steady realize quarter-on-quarter. more as always of way of has it's progression. you, probably been provide not next give you our line, straight fairly

steady that decline We some and the getting we're see overall, are But momentum steady fairly we businesses in like that things volatility. hedging growth fee in mortgage the fairly we that like in pipeline the have growth costs. SBA, starting credit near-term income, fairly see margin, caused this up stable

So can ratio loan-to-deposit growth, we continuously mid-single growth under keep with XXX%. if our digits deposit achieve is to and commensurate guidance that loan that

same the quarter. of kind specific you probably more story that's So give when can next hear guidance you I

Thomas Michael Price

side that market like And pipelines. traction on in loan and deposit Ohio, we both each we and the the also in the have

the with the before, I like the working way we're better smaller reenergized side on And feel I productivity as growth we're community a increase of deposit also also think, a We functionally end good and because ever loan quite the in and good commercial year. the frankly. just in than company, growth in this Pennsylvania

Collyn Gilbert

you That's color. That's helpful Thank great. Okay. guys.

James R. Reske

Thanks.

Thomas Michael Price

Collyn. Thanks,

Operator

Schiraldi ahead. Sandler question Instructions] comes of next Frank O'Neill. [Operator go Please from Our

Frank Schiraldi

good afternoon. Hi,

Thomas Michael Price

afternoon. Good

Frank Schiraldi

you the C&I the give credits. could guess, you just you downgrade estate give color little charged sort was wondered of loans credit call in the specifically, the say two that guys the in terms credit partially And release if spoke could commercial of and a bit any speak let's then you out I you I could on real of mean, of – give wondered broadly just Just I if to off?

there any color, be that can story you Just might helpful. provide any

Thomas Michael Price

that -- of the credits that Well, had PA was first the company And ones, larger in mention a quarter. charge is technology the portion one itself work we two out. probably beginning a and in company a second A was two of Jim? areas the manufacturing was quarter as would then, Western well, Pittsburgh-based to that I another sold

James R. Reske

to are [LLL], and take maybe similar able of just these reserves reduces and aside these them Yes. we we to just credit then provisions. in And set charge. specific against are which reserves off we're this and successful And replaced part the so then credits offset the the amount use able sell to happening of resolution the previously some that had we specific [LLL], the

from the very problems market I had So us would back years credit. note low in local a credits is what EMI that of but guess, Mike's comments, suggest than lending I there's out the some cost banks a like over different looking

Frank Schiraldi

All right.

But were there Okay. did or were I in credits quarter previously? the downgraded happen [indiscernible] couple that that decree the or was

Thomas Michael Price

you [indiscernible]. patch that? could Brian,

Brian Karrip

the non-performing, those Companies credits and we're We credits. there's distributor. out a with credit two credit C&I and moved it. receivers place elected that move working we to out And underperformed bank-based Yes. of forward move in Pennsylvania in and is of

Frank Schiraldi

in guys But general, sounds just Okay. like, stress. again, aren't seeing on credit it you

mentioned credit cost think, to You you about going feel Jim slowing I pretty forward? good. here thinking even stable And

James R. Reske

about. always setting company. we provision aside it's portfolio think to -- expense growth think We'll replace We way right in be That's a let clear, then for and me loan charge-offs. be growing

provision. it will an I It amount of of absolute So the -- and might sheet. size think of the balance wouldn't company of commensurate decline the dollar size be the as it

Frank Schiraldi

TC Okay. then, ratio. on the other And one just

guys bit regular earnings, as you earnings, do I thinking levels do run of buyback or if you I that sort have the of range, the obviously it to you mentioned mentioned a all think should just here X% -- in but Jim, little think But X% accrete accretion you the -- getting about in this even of near-term might to I you to capital through about to we call correct? I'm you hope for on in don't about uses you look And as be running I like you some mischaracterize, those that obviously. believe Cecil? things higher we here just think see kind

Thomas Michael Price

yes Well, and yes.

So ratio a X% as an I equity do target common would to set think that clear range, target. our X% target, informal and Board generally our about not obviously. we regulatory It's impact that Directors. feel but It's that not below generally we feeling underleveraged to is be to as But of capital feel you we range by when characterize a team we're we see management if that set, ROCCE the undercapitalized. and a And that were fall is obviously, ratio. above you would on start range, getting our like

very whatever to are We a permutation. from thinking capital issue public seasonal comes carefully hit absorb

leverage in generally excess that regular capital. of doesn't a in other is kind ways there very want only don't do we have as mindful We as most think and We of of capital about smooth, a in capital steady dividend the program be that, if the leave very buyback balance sheet we excess of in leverage benefit capital, want increase to few whole place synthetic we I a to So use capital. want deploying is don't We accelerate industry lot see do about but to special that. the have to so dividends. deploy to terms or options doing that excess the a thinking stock excess particularly

Cecil and us. makes lot just can for program said, you then of stock a buyback ready absorb sense to we We’re like

James R. Reske

and the if increases, tight -- we all the M&A continue smaller, table dividend last years, cash I with you those. at look market little in the regular and in regularly with over to just course And been it water the [was] been buybacks of expect we've done of a done on so we've that's mean, several the three

Thomas Michael Price

Yes. That's right.

Frank Schiraldi

you. Okay. Great. Thank

Operator

And is Gunther our from question Davidson. Russell of next

Russell Gunther

my all here. hit guys. Hey, Frank, Thank set. capital the I'm target on it follow-up Actually, you. just so taking for Thanks

Thomas Michael Price

Good.

Operator

team closing that back management And ladies remarks. and the I'd any the for like turn over question-and-answer gentlemen, session. to to the concludes conference

Ryan M. Thomas

a say do us. do you important always sincere It's and for I opportunity And you mean. thank and this, together interest quarter-to-quarter. get Commonwealth. company number you I your in First all to from I appreciate to with our of for the

Operator

Thank today's concluded. you, attending all sir. Today's thank And presentation. conference you for has we now

lines, may END and day. You wonderful disconnect a now your have

First Commonwealth Financial (FCF) 24 Oct 182018 Q3 Earnings call transcript