First Commonwealth Financial Corp. (NYSE:FCF) Q4 2017 Earnings Conference Call Transcript

Jan 24, 2018 • 02:00 pm ET

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First Commonwealth Financial Corp. (NYSE:FCF) Q4 2017 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good day, and welcome to the First Commonwealth Financial Corporation Fourth Quarter and Full-Year Call. All participants will be in a listen-only mode. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Ryan Thomas, VP of Finance and IR. Please go ahead.

Executive
Ryan Thomas

Thank you, Chad. As a reminder, a copy of today's earnings release can be accessed by logging on to fcbanking.com and selecting the IR link at the top of the page. We have also included a slide presentation on our IR page, with supplemental financial information that may be referenced throughout today's call.

With me in the room today are Mike Price, President and CEO of First Commonwealth Financial Corporation; and Jim Reske, EVP and CFO. After brief comments from management, we will open the phone call to your questions. For that portion of the call, we will be joined by Brian Karrip, our Chief Credit Officer; and Mark Lopushansky, our Chief Treasury Officer.

(Forward-Looking Cautionary Statements)

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

Executive
Mike Price

Hey, thanks, Ryan. And welcome, everyone, and thanks for joining us. On today's call, I'll take a few minutes to reflect on where we've been in 2017 and where we're going in the year ahead.

Fourth quarter results were affected by the recent passage of tax reform legislation. First, as previously disclosed, the new tax law required us to take a $16.7 million write-down of our deferred tax asset. Adjusting for the DTA and for merger-related expense, core fourth quarter net income of $20.6 million produced core earnings per share of $0.21, a core ROA of 1.11% and a core efficiency ratio of 62.2%.

Second, in response to the tax law change, we decided to provide a one-time bonus payment of $1,500 to all of our employees. This comes on the heels of keeping our employees' health care premium costs and benefit flat to down for yet another year, while adding roughly $500 in each respective HSA account. We have not disclosed the $1,500 bonus publicly until now that have resulted in a $2.5 million one-time expense for the company, which is financially material to our fourth quarter results. This bonus is not adjusted for in any of our published core numbers.

Jim will provide more detail in a moment, but other key fourth quarter performance elements included the following. A $4.3 million gain from the redemption of our trust preferred securities holdings, which had been marked down ever since the financial crisis; modest provision expense of $2.3 million, reflective of strong underlying credit metrics; and loan growth of 2.2% and commercial loan growth of 3.3%, as traction and mortgage in commercial real estate was partially offset by muted growth in branch-based consumer lending.

Looking back on the full-year of 2017 and again adjusting for merger expense and the one-time DTA charge, favorable variances in spread income and fee income, combined with lower credit expense and a boost from securities