FCF - Earnings call transcript Q4 2019 | First Commonwealth Financial Corporation

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Operator

Good afternoon everyone and welcome to the First Commonwealth Financial Corporation Fourth Quarter 2019 Earnings Conference call. All participants will be in a listen-only mode. [Operator Instructions] Please also note today's event is being recorded.

And at this time, I'd like to turn the conference call over to Mr. Ryan Thomas, Vice President of Finance and Investor Relations. ahead. go Please

Ryan Thomas

Jamie. Thank you,

page. reminder, be a selecting earnings a of of Investor copy by logging can the top accessed the and link release on Relations As at today's to the fcbanking.com

Investor We will have call. be with included a may financial which throughout Relations in information slide supplemental referenced page presentation also our today's

After Jim President brief for Chief First Commonwealth of me the in CEO and we management, room With from your President Corporation; comments today Reske, and will and Financial call Vice are Officer. Mike Price, the Executive Financial open questions.

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

conference forward-looking contain to that results presentation and Before materially Please refer could disclaimer statements. statements for call risks actual will the forward-looking of we like a that begin, I'd the our forward-looking uncertainties statements. cause Page to from in on X caution of slide those reflected differ description this to listeners

Accepted of include will operating on results to addition Principles. can measures financial be should an call measures. XX with Non-GAAP Page reconciliation non-GAAP today's be non-GAAP in Today's not accordance Generally in of for A our viewed as prepared GAAP alternative reported presentation. to and financial found Accounting measures also slide

over Price. Mike the to And I call to like now turn would

Mike Price

in quarter as our Jim Ryan. moment, on a earnings fourth thanks Reske, first, Hey a around I'd provide our company. will XXXX to detail but CFO in progress reflect like some

the starting $X.XX current annual represents We of came year growth of earnings $X.XX compound growth which marked per core earnings ended from per straight share core together. in XXXX team earnings. in of XXXX the since share per share point management XX% XXXX with seventh

core Commonwealth million capacity net to core grow. XX.X%. ratio X.XX%, margin interest of $XXX a and continues we earnings of XXXX, income, First net efficiency produced a of In of The

$X.X share per XXXX, XXXX, growth income. in million by gains year-over-year $XX.X securities grew in earnings of driven and in by for Adjusted million income fee X.X% spread in

enter would XX Our of without from in to I and granularly acquisitions margin we loans with deposit Santander at fourth the XXXX we in the the the momentum Loan as of and continued XXXX got XX% and helped following. good X% were associated X% branch the our grow quarter and growth is acquired meaningfully company. highlight stabilize X.XX% growth

Corporate banking, cost with loan mortgage, $X.X and deposits billion growth. average indirect grew with an way points. basis XX led to lending the Total of

and comprised non-interest-bearing XX% cost is in accounts base accounts a at checking XX% of other DDA of now deposit low Our funds. relatively

billion which So, XX% in the of accounts. is of deposit accounts $X transaction total business are or XX%

culture deposit gathering The is of strong.

-- we the the September PA and grown deposits we from As by those $XX of required of Santander as in million branches deposit acquisition acquired in balances following early roughly XXst, an aside, $XXX December Central had million. XXXX,

near historic as indicators uptick Despite our the either provision either at key were lows expense, strengthen our our for of at -- quarter-over-quarter or Several company. credit continue the does to credit metrics credit our culture were company. in

in mention loans with points basis for the XX at an company. historic criticized example, is encouraging. loans special charge-offs to at assets to quarter at points, particularly low XX sharp loans of nonperforming $XX XX loans fourth nonperforming The For and points basis in at decrease net also basis loans our million

cycle. maintaining geographic in discipline the the on concentration and economic this Our diversity well ongoing improving focus leaves at positioned bank granularity, stage increasing

also historic of million of income high and company for noninterest revenue. Our was $XX.X total our now XX% comprises our an roughly

quarter. our company internal income the in set fee Interchange income and for fourth deposit records

quarter noninterest in average meaningful of businesses momentum. noninterest income quarter an in banking our of from million have our up $XX.X a insurance wealth, Moreover, XXXX million XXXX, $XX.X gains, security part XXXX. was average per in become income mortgage, and and Excluding our per and quarterly only corporate million SBA $XX

Additionally, the our have five acquisitions over checking last new four added years precious households.

improved branch rate despite and environment year-over-year acquisition attention budgets, that. mindful the not in of in efficiency the to Core forecasts results we're That our close interest we Santander actual of importance as the of integration and XX.X% pressured pay said, also in being our the only but operating of quarterly leverage, XXXX ever margin. and

line our short, strong the and are now corporate are through In and of each businesses winning a in on and leaders communities. are banking business coordinated getting These by their and regional respective two our key has retail And base fee mission same led businesses year growing bank who focused broader of businesses. better geographies. fulfilling across presidents

credit stronger, sheet XXXX. as external are experienced a in and balance Our environment even we tougher metrics

And our Jim? turn insights. other quarter with that, over I it will Jim Reske to and detail for fourth

Jim Reske

the to efficiency quarter core the XX.XX% Thanks average Fourth return X.XX% core Mike. -- came bringing fourth at and quarter, noninterest provision core $X.XX compared and bringing share to million. ratio The $XX.X expense assets earnings prior the $X.X on in per headwinds expense, respectively. in quarter noninterest and Major million return an share. additional per provision expense, $X.X were million $X.X additional to included million in

in acquired impacted quarter strong but hospitalization to expense the elevated onetime by well remained was which compared with growth, a quarter. expense Provision by Santander expense of added expense fees, branches. expense professional last million associated was provision impacted Noninterest and overall, controlled loan $X.X full

bank. surrounding expense for professional of portion fees, FDIC fee expense contract largest result was is third-party have a renegotiation consulting expense in a The associated from with year. the that which quarter to expect because was fourth in savings we in to of the insurance significant credit $XXX,XXX expected the the the credit use remaining used quarter we of half up we XXXX, the for $XXX,XXX unchanged in first last

$XX.X rate interest despite included a of solid in interest to million X.X% Fourth challenging which growth X.XX%, coupled income with interest of loan positives margin produced when quarter net growth a annualized, net environment.

million. quarterly $XX.X improvement swap a of mortgage securities a income million in income income. seasonal in gains, A than decrease noninterest Additionally, fee $XXX,XXX fee more $X.X offset excluding all-time high recorded

deposit both million XX% service completion the of customer charges growth to grew acquisition and $X.X income Interchange our as of Santander in successful branches. total the million, the $X.X of base due of the result a of

remains Our unchanged. essentially forward guidance

expect We in loan guidance. the with of mid-single-digit slightly margin year expected to deposit our in allow continue XXXX X.XXs compress us discipline the low deposit maintain to with newly to over deposits course the consistent growth the is acquired growth as pricing. past The lagging to behind

Our effective the quarter XX.XX%. was tax rate for fourth

you we'll that questions have. take may with any And

Operator

go Riley your from question. today first ahead with Instructions] question from [Operator Our Please comes B. Steve Moss FBR.

Steve Moss

guys. afternoon, good Hi,

Mike Price

afternoon. Good

Steve Moss

to expenses I on start here. wanted

think perhaps professional how Will you as the upcoming we year? saves wondering color for potential to cost contract line the and Just on? And two for the that quarter about goes see total overall around any of the expect item. remain expenses elevated renegotiation

Jim Reske

come guidance. $XX next the probably item a The But similar quarter should a million picture overall be fee $XX overall between quarter. professional million fee bit. hovering Sure. line the year fourth to just will Yes probably and for more I'll fairly down – little you explicit give the

Steve Moss

that terms that be be saves of Okay. would that XXXX would could out? realize And Or a a event? cost the little further you potential in

Jim Reske

quarter and those that saves. into you contract saves we The reflects those netted experienced already gave in cost fourth were really expected but number – results cost I the

Steve Moss

in growth on another then of Okay. Got quarter. just good here terms And the loan you. –

color where loan the Just seeing you're wondering any days? on demand pipeline and these

Mike Price

fronts. two Really

is in in mortgage of leading On end the outpacing our weathered way We payoffs up the feel and quarter as We lower commercial the production indirect well. of estate the And is we've really the storm in side, the And equity there. side first had commercial consumer And are with the space banking. Private now solutions side. story business. $X.X production payoffs. at real the almost XXXX for originations like billion also corporate of active. least branch real pretty was commercial was markedly of

Steve Moss

Okay. we And That's margin think that margin cost – think the then the to cuts? just versus helpful. the funding loan any And there's down yields? rate we X.XXs any here mid – include about progressing about does how should guidance as on

Jim Reske

our year would for that around XX-year Yes our rate assume cuts in update contemplated are no assumed sure. right the that guidance. In We've full rate there obviously X.XX% is rate we cuts no we XXXX. If cuts the but planning. in planning yield

Steve Moss

to So pretty much would be margin down fair earning the just Jim? assume relative asset bulk coming yields it's compression of costs the funding to

Jim Reske

get all and exactly gives from that's increases. of right. We that that right, costs loan did new exactly on power we'll benefit rate That's some deposit deposit much the very some There's deposits us pricing side. influx costs with obviously raise the through

costs should come down deposit a those little So bit.

on rates from negative new the running to of on most the are the compared is compression So loan replacement loans to come off. originations yields that going

Steve Moss

Jim. you Mike very much Thank Okay. and

Jim Reske

Steve. Thanks,

Operator

from your Gunther ahead next Davidson. Our question. Russell question D.A. Please from go comes with

Russell Gunther

Hi, good afternoon, guys.

Jim Reske

Good afternoon.

Russell Gunther

some circle line guys XXXX like weathered XXXX organic to bias Steve's up that I of with it back loan on that the upside your want the to looks perhaps just it? questioning Mike side. put storm. from particularly this X% that in payoffs growth we is And you've even comments given infer Can result to you the achievable for again

Mike Price

our is the chunkier us. is with in past orders years I de-risking to of water did guidance have that and we exposures compared behind Well we digits. some mid-single more say the would larger really

was I first with say the my purview also And so would guidance the and of the – quarter. in estate commercial real pipeline just

have I quarters, were least aggressive looks a about decreases I a yes. I we'll But number we first sit cards to resilient. So over found to if sidelines. the see resilient structures this the we X%. we dealt next on the very year to else. way some different and think earnings kind our equally would to of We get And a quarter And share lot indeed we that in at better. and had get everybody choose be but grow think still like three more But or the how year, like per unfolds this we it get say three

Russell Gunther

it. Okay. Got

it mid the And bias geography single-digit how within about of from Now results? loan be is directionally then that mix the or the makes production to sense. portfolio what

Mike Price

that's That Pennsylvania our same is portion depository Yes, question. of producing I did an that growth. are guidance in great outsized and in the about We mature. give XX% markets a Ohio our the you I'll quarter. said, being more of And probably have last

College share. how done where small And We Santander and acquisitions State greater Pennsylvania about and Pennsylvania towns we Central we're with feel those in quite I-XX. community really doing have in in up along Williamsport we've good

we more indeed Ohio there. of driving is an can grow But outsized growth. little portion So the a bit

with really cross-functionally and coordinating us really that better old. show is cross-selling other about the in in the It's wealth two or those regional fee model side up better you're businesses. The non-interest thing market insurance for income and which presidents on three the seeing income years is in

good So we're lots feel of synergy kind just hitting of there. like stride. We our

Russell Gunther

appreciate then your work to very on the the would Thoughts the be And M&A me good general buyback for helpful? as but landscape I well just would Thank last you. on one guys That's around as Mike. hear. to putting capital color comments deployment. be here, appetite

Mike Price

Go ahead Jim.

Jim Reske

start had rest -- we spended deploying Mike I'll of acquisition. million that. Sure. in buyback branch the off turn buyback last the on authorization of over for favor and to the we capital authority it of The then about We $X buyback the a had thoughts million executed on $XX year. the on And M&A.

execute share hopefully, acquisition the a over bit the of of hopefully this branch the we'll million the the of remaining is we'll repurchases over do $XX buyback that to that million authority resume course us, first But and remaining little half price-dependent. over probably half first course Now we expect -- execute XXXX. It's of the behind year. $XX

Mike Price

the looked But the more footprint. seen in XX-plus to the a I in at shared five. to looking contiguous to know we've maintained things as On get dust our things have up M&A we're footprint of as and in side, you discipline little -- shared kicked to past, at we've really past and bit we we've look lot a and our Jim

at there's continue. shy not from would could that's least that fall larger, short historically. a we said, suspect those kinds That I a little on $X being so tend We And lot deals if more of to that. away

Russell Gunther

your appreciate Thanks guys. taking my I for But comments questions.

Mike Price

Thank you.

Operator

question. with question from next KBW. from go Please Gilbert ahead your comes Our Collyn

Collyn Gilbert

afternoon good Thanks, guys.

Mike Price

Yes.

Collyn Gilbert

if we just the could maybe Just Jim NIM. on

XXXX. it kind heard you had I'm if kind if X.XX% guided had low-X.XX% a right of last So was high for mid-X.XX% NIM. I think think to in correctly, before of -- I I a you quarter, sorry And it I

on the that necessarily it Is change the are to be sliced? side, asset there? be Just Or side? hairs curious in I funding to trajectory what slicing more might needing the not it's on am

Jim Reske

guidance haven't clear the say you're I just enough. guidance. by Collyn. No same low-X.XXs change is sensing It I meant be a supposed Actually What because year. we if that's next the really problem in to No. end the of to see was been

mostly So drifting the year down due replacement of over to yields. those slowly the course negative

see in we're now. could the the because the next quarter The the be average ending you So low-X.XXs. off of for probably starting year will just year mid-X.XXs fourth

Collyn Gilbert

Got it.

Jim Reske

That's limit. the

Collyn Gilbert

just Okay. That's helpful. on And OpEx then the guide.

it fair obviously Mike as just kind But of bit understand some Especially, XXXX. driver know I are impact trending to point else you've be savings from seems anything guys what relative that. on that the you're in to dynamic there the a on vendor So that XXXX seeing renegotiations? the you -- perhaps within trending OpEx? Just if higher in to -- branches. trying some higher it's your percentages of going but to the that's is that's on -- to higher a in going be that done

Mike Price

that think continue. We will

banking I and we high-end the a created elsewhere. or maybe or That a business, our some corporate have business strain. think added two of producer two -- in mortgage has producer

seeing the But and where we you're we're we through the the Collyn in exactly with leverage flows that that I quarter-to-quarter and income to than company of operating non-interest on faster side. loan mean, income that production interest think grow I at need revenue net the expenses. the understand nevertheless,

there. flowed and ebbed we've so And

seven that on to stride side number. the we always but renegotiating revenue and gotten Right good want years one you We not big now about probably we've better that's last X.X be. can't little But growth that. side. helpful share over the we've really Jim it's to a feel as a -- the me It's contracts. any alluded We're This figures. details

Jim Reske

Collyn. of if little that some more add I a could Yes, color to

in I growth with should base and expense the is XX% branch picture we In volume our margin in XXXX. big words, to think due view that leverage with coming expanded is outstrip we the other revenue the in macro our do acquisition. growth growth footprint even see declining increased in mostly that just the continued customer operating And by the the fact expense. about branch from a

base expense for and it's X% We've out our stripped is to look the growing normal -- some growing acquired say those without with internally of much rate numbers employees. newly than our even to at increases branches expense how merit less

So expenses. that's it's it's confident relatively why we're -- saying in well-controlled

expense that The one dynamic be in hospitalization. expenses that we talked about from year-over-year. meaningful time to Hospitalization may time significantly up is is

was plan We reinsurance get to too $X.X costs than it And in in have a of XXXX the when that we But more cost high. be cost self-insure essentially. about XXXX. plan million where we have

very So significant.

XXXX. revert was will some We That think the that mean. to over time experience just extraordinary in to due

ago. gave of So But dynamics we do a of all the I think kind moment guidance those down. will all some of come are baked into that expense

Mike Price

a it a up we right trend. still end our a the have three Yes year that now self-insurance but with at the care side see have it plan could after we'll It could to operating in -- And was for closely. or tailwind same leverage this number. you year. higher outlier this -- an if about four expense it last year years becomes in be being health But watch with

ways to some have we So be planned.

Collyn Gilbert

Thank then CECL? really Okay. Jim have on very did offer color on great CECL? Have And given you That's any can much color. -- you guidance you -- you that. on

Jim Reske

is earnings track. we more of our haven't we we nature general mean guidance guidance or think a I call. -- release on given this CECL give would our Yes. on No planning is the in

We run of are process number. the have complete. validation place structures. a that have parallel we for governance model in runs today external a We've actually to in and prepared the on exact not proper an give We're do process is call put having because not firm us

be publishing XX-K which the in a so weeks. do few however will we'll We in

Collyn Gilbert

That Thanks, right. it right. there. will sounds guys. Okay. I All good. That’s

Mike Price

Thank you, Collyn.

Jim Reske

Thanks.

Operator

from next Markets. RBC Our comes Steven question. Instructions] Duong with ahead [Operator Capital your question go from Please

Steven Duong

guys. afternoon, Good Hey.

Jim Reske

Good afternoon, Steve.

Steven Duong

Hey.

right? correct? heard year? the to this make NIM I X.XXs was of want I sure not the year So low by the just next end that that guidance So Is

Jim Reske

-- was the for by XXXX. of end calendar guidance the end That year

Steven Duong

Got it.

you. that expect? from? your did to this expect Thank And where Great. we And growth come into what you Is quarter? that DDA non-interest-bearing And a from we Okay. can seasonal expect would thing? it can And going out just where come what XXXX?

Mike Price

efforts of with board a really across coming it's small the business Yes, lot calling.

and consumer -- Grebenc, growth. the he's This have commercial gathering We quarter. on this a -- just management side. really Jane balances escrow I culture think really and really the around tactical on on line. mail I deposit President, mean mean you deposit anything treasury mortgage business on There in And to and and the And was a the good getting phone. granular, lot small both good do focused clients. just this but team the culture -- combination our it team but our wasn't the comment direct in that's that's some with just particular, do think I and is getting pretty but you're this? for to Jane, I silly, want even

Jane Grebenc

would you by out in us. was deposits that that think, XX balances. grew nice And quarter that add the said. first also of QX, we would way, for was with Thank in, I offices. the everything tailwind of agree And XX home And I Santander Santander had Nice, we Mike. because you, a a the I full that depository. run nice the

So, Thanks. it. bullish on we're really

Steven Duong

great guys. That's

growth, consumer this loan past guys the getting on then, the you looks solid that So, year. solid growth a to side -- really And good. consumer just back had

same. especially prospects, stay growth looking or side the Are don't lighter? for still similar get and any a in a mortgage if Now lower. you rates the indirect the little maybe They

Mike Price

seems quarter now me, --excuse be than the in For portfolio-ed demand fourth there. we a had is the third tailwind we the more mortgages quarter. to One few

So probably board Jim. retail But it went our maybe one income gain was in good portfolio non-interest That's really the commercial. in and year-over-year production on difference side. XX% more up and down the just sale across

Steven Duong

that what's the to you And typical amount your going that, year? with portfolio

Mike Price

XX% this over It's been a then running right? XX%. more And was little to that past it quarter, XX%. Did like sound

Jim Reske

okay. That's right. That's

Steven Duong

Got it.

else on here. if just two some And anything could that? Okay. let color the just see me And then, commercial give you there's credits,

Mike Price

Yeah.

Karrip, have Credit Brian? here. our Officer Chief We Brian

Brian Karrip

In announced loans Yeah. successfully credits earnings And was charge-offs associated in call, in we the that previous those came two there we nonperforming quarter. resolution some and around the resolved some fourth $XXX,XXX. with

Steven Duong

me. you. Got for Thank it. it That’s

Operator

[Operator comes Schiraldi Please your next Instructions] question. with from Frank Piper Sandler. ahead Our question from go

Frank Schiraldi

afternoon. guys. Hi Good

Mike Price

Frank. Hey,

Frank Schiraldi

like about like Mike from you expense, comments thinking operating given loan me -- in important Just and And -- going you sounds seems to in is to that it is quite it then high-single-digits positive your fee to that to be want to commentary -- anticipate margin be then operating growth need have leverage income your XXXX delivering me I so XXXX. would or quite around sounded growth just leverage. And that strong to positive so. guys it and or

leverages just positive XXXX? deliver is back So is on doable? important that operating that to for just And the

Mike Price

as X% Jim our that I positive think growth to income or as non-interest plan, leverage. As And about similar part of that's trajectory our alluded operating think plan. in so we

Frank Schiraldi

Okay. -- sorry. then And

Jim Reske

to add. going I was No, only

track that us. the growth given fee and of recently for that we're getting traction, in really record doable recent kind the think seems I income

Frank Schiraldi

back just And Okay. M&A. then to

that about different the something thinking of MOE? a seen number we've XX, have potential interest on markets just markets. months? across along Just in place your one you're over take one the Wondering call would something it's the in level an mean last XX there -- lines your the And if in country. interest you if -- the I next your the how guys thoughts it

Mike Price

we for shareholders. -- Board July, about think bank what MOE we talk acquirers. about front return And -- we we possibilities. we have every our above-average are we sell how create mean, I Yeah. potential -- who could in for the returns And of

just kind you're if meaningful cost $XX at to things think, the this out I putting to taking table. time at time and million together you're of but two on of And so $XXX million be not companies PE, that's times have the shareholders. all to any And,

just feet. ends of continuing rate growth And and keeps in curve. to all of that's we our on flat, We produce, light it do. organic -- long honest headwinds particularly to have and you And interest the your yield move

Frank Schiraldi

thanks. All Okay. right great

Operator

gentlemen, for questions. And no I'm to floor to remarks. over at the any additional turn closing time, back ladies I'd and this management showing like

Mike Price

a quarter, Jane good There give Yeah. just a the every Jim NIM. finance it's like Montgomery. kudos game. the Every Norm would deposit my team about inning, questions thing were is team which lot the one month, of And includes Grebenc, to baseball and I every X-inning

what's what If margin, They sort looking are. tell every with single happening us we right get a replacement of yields on Jim's And scorecard now. month.

just discipline at focus arising. what the or like look just... two, Jim I'm last on is where pressures and it month there we're what And and did we're So And where are going.

Jim Reske

it Actually negative -- replacement nine last basis were yields in quarter. points only Yeah. was the

something on expected top hopeful little than So it's say we to actually of. bit -- us it's internally this year need for next little we makes we a that less

Mike Price

Yeah.

operating I margin it through to key And -- we as and understand you you leverage know, we're -- So the mean, and has tough to want as reins. the budget. I Frank a just what's guidance be holding -- Steve We're with took as the is us happening. you

row. And we're hit has grow. a one six, that in to years we've again. expect we budgets It do seven those be now of it kinds indeed And to stretching to

it. appreciate for in company. We thank you our interest your We

Operator

we'll do you conference for with presentation. call. conclude joining gentlemen, and thank We today's that, Ladies today's

now may lines. disconnect your You

First Commonwealth Financial (FCF) 29 Jan 202019 Q4 Earnings call transcript