FCF
#Thank you, Anita.
As a reminder, a copy of today'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've also included a slide presentation on our Investor Relations page with supplemental financial information that may be referenced throughout today's call.
With me in the room today are Mike <UNK>, President and CEO of First Commonwealth Financial Corporation; Jim <UNK>, our Chief Financial Officer; and Mark Lopushansky, our Chief Treasury Officer.
After brief comments from Mike and Jim, we will open the phone call to your questions.
Before we begin, I'd like to caution listeners that this conference call will contain forward-looking statements about First Commonwealth, its businesses, strategies and prospects.
Before we ---+ please refer to our forward-looking statement disclaimer on Page 2 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 statements.
And now I'd like to turn the call over to Mike <UNK>.
Thank you, <UNK>, and welcome, everyone.
First quarter 2018 core net income was $23.3 million (sic) [$23.5 million], a highest quarterly net income figure in the history of our company.
First quarter net income produced earnings per share of $0.24, core return on assets of 1.31%, a core return on tangible common equity of 15.73% and a core efficiency ratio of 58.2%.
We also raised our dividend 12.5% to $0.09 per quarter or $0.36 per year.
Three tailwinds for the quarter included: first, the net interest margin improved 8 basis points on a linked-quarter basis to 3.69% and a couple of things were at work here.
The December increase of the fed fund rates was absorbed positively into the loan book.
Additionally, deposit pricing remain disciplined and balances grew nicely, also allowing the payoff of increasingly expensive borrowings.
I think also a newly booked yields on commercial loans were greater than those that we're running off.
The margin helped enable net interest income of $60.2 million, despite a decrease in ending loan balances of $31.2 million on a linked-quarter basis.
For the quarter, unanticipated payoffs in commercial loans increased significantly.
Conversely, average deposits increased $77.1 million, in large part due to the traction in consumer checking balances.
The second tailwind beside margin was core noninterest expense and this is excluding merger-related expenses of $300,000.
It was $46.5 million, which showed good progression on a linked-quarter basis.
And then the third tailwind was a securities gain of $2.8 million, stemming from the liquidation of a previously written down trust preferred security pool.
Some headwinds included elevated provision expense of $6.9 million, due to $7.3 million of specific reserves relating to two credits, the first of which was a local company, a $5.5 million specific reserve and an additional $1.8 million specific reserve for a commercial real estate credit.
This comes on the heels of 6 consecutive quarters of really manageable provision expense.
In short, and with the help of the security gain, the income statement resiliently absorbed the quarter's credit headwinds.
Other notable items, we continue to see nice developments in our market extensions via our acquisitions in Northern Ohio and Central Ohio.
For example, in Northern Ohio in the first quarter, our retail loans grew $7 million or about 21% annualized and our consumer deposits grew $10 million or 8% annualized.
In Central Ohio, our business deposits grew $66 million on a $631 million base.
We really assembled some capable teams to include commercial lending and mortgage professionals and with recently recruited presidents for both the Northern Ohio or Cleveland MSA as well as the Columbus MSA in Central Ohio.
We expect to repeat the same pattern with Foundation Bank in Cincinnati, which will close legally on May 1, and the actual bank conversion is slated for later in the month.
Several items here.
We really like the current CEO and the team he has assembled, Foundation is a profitable 5-branch bank with strong credit and enterprise risk.
The bank is just clean and is very well run.
The commercial lender and the CEO there have already introduced us the opportunities in the market, where our balance sheet and commercial capabilities can really make a difference.
One other item before I hand it off to Jim <UNK>, our CFO.
The Pittsburgh Business Times recognized First Commonwealth as the second largest SBA lender by dollars in the Pittsburgh MSA in a story that ran 2 weeks ago.
We're very pleased with our progress with our SBA initiative, which was reenergized about 1 year ago with the acquisition of Delaware County Bank in Central Ohio.
Jim.
Thanks, Mike.
Mike has already provided you with an overview of our results, but let me provide some color on 2 other things that impacted first quarter earnings just so that you can get an accurate picture of the underlying earnings power of our company.
First, in the first quarter, we experienced $2.8 million of securities gains as compared with $4.3 million in securities gains in the fourth quarter.
I want to point out that these were not discretionary sales of securities from our investment portfolio.
Rather, they were the result of successful auction calls of two pooled trust preferred securities holdings in our portfolio, which had been marked down ever since the financial crisis.
We have no say in the timing of the auction and the success of the auction, we justify the value of the individual trust preferred securities to form the pool.
But if it is successful, we are fortunate enough to get a check for the full amount of the holding at par and that\
I'm reticent to do that only because let me say what it's not.
It's not heavy industry or oil and gas on the larger credit, it's a local company in Western PA.
About 40 years old with about 6 years of history with us with the direct C&I credit.
And the other credit is commercial real estate and the owner failed to maintain the property.
With deteriorated ---+ deteriorating conditions, tenants left.
The specific reserve was $1.8 million, and we expect to receive some indicative bids that will prove that specific reserve.
No.
Yes.
Sure, I just want to be careful about that so that nobody got the wrong impression of an overly low effective tax rate.
I mean, we calculate our effective tax rate at 18.91%.
We just had some ---+ what you might call it true-up adjustments in the first quarter really related to the DTA adjustment in the fourth quarter and that showed up in our tax hike this quarter.
So we actually called it out in the body of the text of the earnings release, and I want to highlight at the call so everyone's clear on the effective tax rate going forward.
As always, we appreciate your sincere interest in our company.
We have the great privilege of being on road shows and conferences with all of you and look forward to that in the ensuing year.
Thank you very much.
