First Commonwealth Financial Q2 2025 Earnings Report

First Commonwealth Financial EPS Results

• Actual EPS: $0.38
• Consensus EPS: $0.34
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: $0.37

First Commonwealth Financial Revenue Results

• Actual Revenue: $131.33 million
• Expected Revenue: $125.88 million
• Beat/Miss: Beat by +$5.45 million
• YoY Revenue Growth: N/A

First Commonwealth Financial Announcement Details

• Quarter: Q2 2025
• Date: 7/29/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, July 30, 2025
• Conference Call Time: 2:00PM ET

First Commonwealth Financial (NYSE:FCF), a financial holding company, provides various consumer and commercial banking services in the United States. Its consumer services include personal checking accounts, interest-earning checking accounts, savings and health savings accounts, insured money market accounts, debit cards, investment certificates, fixed and variable rate certificates of deposit, mortgage loans, secured and unsecured installment loans, construction and real estate loans, safe deposit facilities, credit cards, credit lines with overdraft checking protection, IRA accounts, and automated teller machine (atm) services, as well as internet, mobile, and telephone banking services. The company's commercial banking services comprise commercial lending, business checking accounts, online account management services, payroll direct deposits, commercial cash management services, and repurchase agreements, as well as ACH origination services. In addition, it offers various trust and asset management services; auto, home, and business insurance, as well as term life insurance; and annuities, mutual funds, and stock and bond brokerage services through a broker-dealer and insurance brokers. The company was founded in 1934 and is headquartered in Indiana, Pennsylvania.

First Commonwealth Financial Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Core EPS of $0.38 beat consensus by $0.03, up from $0.32 in Q1, yielding a core ROA of 1.31% and a pretax pre-provision ROA of 1.95% with a 54.1% efficiency ratio.
• Positive Sentiment: The net interest margin expanded 21 bps to 3.83% in Q2, driven by improved loan yields, lower deposit costs, the Centre Bank acquisition and hedge roll-offs, while 8.1% annualized loan growth lifted net interest income to $106.2 million.
• Positive Sentiment: Noninterest income rose $2.1 million to $24.7 million on stronger mortgage, SBA, interchange, wealth and service fees, and total deposits grew 9% YTD to $10.1 billion, led by Pennsylvania and Ohio markets.
• Negative Sentiment: Provision expense of $12.6 million included a $4.2 million specific reserve for one commercial floor-plan loan, pushing nonperforming loans up by $40.1 million in Q2.
• Positive Sentiment: Company expects NIM to reach the low- to mid-3.90% range by year-end, anticipates quarterly net interest income of $110–115 million, and has $31.2 million in share repurchase authority.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the First Commonwealth Financial Corporation Second Quarter twenty twenty five Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. As a reminder, today's call is being recorded. I will now hand today's call over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead, sir.

[Ryan Thomas, Vice President / Finance and Investor Relations at First Commonwealth Financial]

Thank you, Tamika, and good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation's second quarter financial results. Participating on today's call will be Mike Price, President and CEO Jim Reske, Chief Financial Officer Jane Grebemps, Bank President and Chief Revenue Officer Brian Suhocchi, 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've also included a slide presentation on our Investor Relations website with supplemental information that will be referenced during today's call.

[Ryan Thomas, Vice President / Finance and Investor Relations at First Commonwealth Financial]

Before we begin, I need to caution listeners that this call will contain forward looking statements. Please refer to our forward looking statements disclaimer on Page three 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 statement. 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.

[Ryan Thomas, Vice President / Finance and Investor Relations at First Commonwealth Financial]

And with that, I will turn the call over to Mike.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Thank you, Ryan. We are generally pleased with our performance this quarter. Our core earnings per share of $0.38 surpasses consensus estimates by $03 and was an improvement from the $0.32 reported in the first quarter. Our headline financial metrics were robust with core return on assets of 1.31%, a core pretax pre provision ROA of 1.95% and a core efficiency ratio of 54.1%. We've consistently worked towards building a high performing franchise.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

This quarter's results reflect those efforts and occurred just one year after absorbing a $13,000,000 downdraft in annualized debit card interchange income due to the Durbin amendment as we crossed $10,000,000,000 in assets. Let me highlight a few key drivers this quarter, many of which build on the trends we've discussed in past calls. First, our net interest margin expanded significantly from 3.62% in the first quarter to 3.83% in the second quarter, a 21 basis point increase. This was driven primarily by improved loan yields and lower deposit costs and aided by the Centre Bank acquisition and the roll off of the macro hedges. This margin expansion coupled with strong loan growth of 8.1% annualized fueled a $10,700,000 increase in net interest income over last quarter to $106,200,000 We've said before that our focus on optimizing our balance sheet and driving high quality loan growth would position us well in a dynamic rate environment, and we're seeing those efforts bear fruit.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Loan growth was broad based with standout performance in Equipment Finance alongside meaningful contributions from small business, commercial, indirect and branch lending. Perhaps even more importantly, we grew both deposits and loans in four of our six geographic markets. On the fee income side, we saw a $2,100,000 increase in noninterest income to $24,700,000 with strong contributions from mortgage, SBA, interchange, wealth and other service charges. The growth reflects our ongoing efforts to deepen customer relationships and expand our noninterest income streams. Our deposit franchise remains a cornerstone of our bank.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Total deposits grew 9% year to date, reaching $10,100,000,000 Notably, our Community Pennsylvania region, which accounts for 37% of our deposit funding, continues to perform exceptionally well. And we're pleased with our continual progress in Ohio, where organic growth and small but strategic acquisitions have built a $4,000,000,000 bank. Ohio also accounts for the bulk of our new loan growth. The integration of Center Bank, which closed on May 1 and converted in early June, is progressing smoothly. Center added $295,000,000 in loans and $278,000,000 in deposits, bolstering our presence in Cincinnati.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

We're confident the long term value of this acquisition will enhance our Ohio franchise as we've seen with prior integrations. On the credit front, we experienced the continuation of positive trends in charge offs and delinquency. Our second quarter provision expense was $12,600,000 with $3,800,000 tied to day one CECL provision for Centre Bank, which we've excluded from our core income metrics. Of the remaining $8,800,000 in provision expense, 2,600,000.0 can be attributed to a net increase in specific reserves, which was driven by a $4,200,000 specific reserve for a single commercial floor plan loan that was moved to non accrual and reserved for in the quarter. With respect to the Floor Plan credit, we are operating under a forbearance agreement.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

And as it remains an active workout, we appreciate your understanding that we'll not be able to provide a lot of further detail on today's call. The impact of this single credit and the inclusion of Center caused nonperforming loans to increase by $40,100,000 from the prior quarter. Absent these two events, our core credit metrics for criticized, classified and nonperforming loans were all neutral quarter over quarter. Looking ahead, we remain optimistic about our trajectory. The momentum we've built through disciplined execution, strategic acquisitions, a regional business model and a customer centric approach positions us well for the 2025 and beyond.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

As we've said before, our goal is to be the leading community bank in our markets, delivering value to our stakeholders while staying true to our mission of improving the financial lives of our customers and communities. I'll now turn it over to Jim Reske for a more detailed review of our financials. Jim?

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Thanks, Mike.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

As Mike mentioned, the 2025 was a strong quarter for us. Our earnings performance was driven by an expanding margin and strong fee income, so I'll focus on those two areas and wrap up with some brief thoughts on expenses and capital. The net interest margin, or NIM, expanded 21 basis points to 3.83%. We closed our acquisition of Standard Bank during the quarter, so the natural question is how much of that NIM improvement comes from the acquisition. Center's impact prior to Mark's was actually fairly neutral, which is not that surprising considering that its first quarter NIM was almost the same as ours, just three basis points less, and it was a relatively small acquisition for us.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

The marks on their loan portfolio, however, added four basis points to our NIM in the second quarter. Of that four basis points, two were related to the acceleration of marks related to loan prepayments, but the other two should continue. All of that means that most of our NIM expansion was due to our organic banking business. We did have the benefit of a maturity of January in macro swaps for two thirds of the quarter, which added about three basis points to NIM in the second quarter and should add another two basis points next quarter. The rest of the NIM expansion was slippage in assets and liabilities, with nine basis points of the increase coming from assets and five basis from liabilities.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

New organic loan growth was strong at 8% annualized, and those loans came out of the books at rates that were 42 basis points higher than the ones that ran off. The cost of deposits fell by eight basis points, but we had increased borrowings by the end of the quarter, so the total drop in the cost of funds was only five basis points. Our forward NIM guidance this quarter is based on a revised baseline forecast that now contemplates two Fed cuts by year end, down from three in last quarter's forecast. And in that case, we'd expect our NIM to expand to the low to mid-3.90s by the end of the year, give or take a few basis points as always. If there are no cuts at all, the NIM would expand another five basis points on top of that by the 2025.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

That guidance includes an additional two basis points in the 2025 from the macro swaps that matured last quarter, plus macro swap maturities of $25,000,000 on August 25, dollars 25,000,000 on October 10 and $50,000,000 on November 5. It also reflects expected pressure on loan spreads and the need to price deposits to fund our loan growth. All told, with the loan growth, the acquired central portfolio and the improved margin, we believe that our net interest income should be between 110,000,000 to $115,000,000 per quarter for the remainder of 2025. Turning now to fee income. Our noninterest income increased by $2,200,000 over the last quarter.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

There are about 600,000 of items here worth mentioning. First, we had about $375,000 in gains on the sale of OREO properties in the quarter. There's only about $1,000,000 of OREO left in our books, so I wouldn't count on outsized OREO gains again anytime soon. Second, the $436,000 increase in BOLI income included $166,000 from a debt claim, while the rest of the increase comes from higher crediting rates on the BOLI portfolio. Other than that, our fee income improvements in the quarter were broad based and, as Mike mentioned, included improved performance in fee income businesses like mortgage, SBA and WIL.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Turning now to expenses. Operating expense, which excludes merger expense, was up by about $1,100,000 from last quarter. Increased salary expense associated with the newly acquired center employees was offset by lower incentive expense compared to last quarter, leaving the salary and benefits line item relatively unchanged. Some of the increased expense that shows up in other this quarter was associated with increased loan volume in areas like SBA. Finally, with regard to capital, Capital ratios improved due to retained earnings along with a reduction in AOCI.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Our tangible book value per share grew by 7.3% annualized from the previous quarter. There's very little buyback activity in the second quarter, but we ended the quarter with $6,200,000 of share repurchase authority and just obtained an additional $25,000,000 in share repurchase authority from our Board yesterday. And with that, we'll take any questions you may have.

[Operator]

Your first question is from the line of Daniel Tamayo with Raymond James.

[Daniel Tamayo, Vice President at Raymond James Financial]

Good afternoon, guys. Thanks for taking my questions. I apologize, Jim. Did you give a guidance range for expenses in the third quarter or the back half of the year?

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

I didn't, Danny. I looked at the expenses and and the consensus seemed like they're pretty much on track. I think the consensus for the third quarter here, I'm looking at it now, is $72,800,000 Fourth quarter is 73,100,000.0 Since you asked the question, I will take the opportunity just to mention something. When we look at our internal budgeting and forecast, we see a little trail off in expenses and noninterest income together. They kind of offset each other, but we see a little trail off in the fourth quarter just due to seasonality, just the way we budget.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

There's some income there's some business lines that have some seasonality where customers are shopping for cars and mortgages and buying homes more in the summer months, it trails off a little bit along with some expenses towards the end of the year, like hospitalization that trails off because of our the way we operate our self insurance or hospitalization expense. And the consensus forecast has both of those pretty pretty consistent and not a significant amount of expense in the from third to fourth quarter, and both of those should trail off a little bit in the third to fourth quarter. It doesn't matter that much because they kind of offset each other, but appreciate you asking.

[Daniel Tamayo, Vice President at Raymond James Financial]

And then but then they would they would both bounce back in the first quarter of of next year?

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Yeah. Probably.

[Daniel Tamayo, Vice President at Raymond James Financial]

Just kind seasonal items.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Yeah.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

That's right. That's right. And then, know, we had pretty fairly off the top of head, like four ish percent growth in expenses year over year pretty consistently.

[Daniel Tamayo, Vice President at Raymond James Financial]

Okay. Helpful. Thank you. I guess, secondly, you talked about it at the end there on the repurchases. The stock price is higher now.

[Daniel Tamayo, Vice President at Raymond James Financial]

You didn't buy back much or any in the second quarter, but you had the deal happening. And I'm just curious kind of what the appetite is. Obviously, you've got the new authorization. You've got plenty of dry powder, if you will. So how are you guys thinking about repurchases now?

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Yes. We'll go back into the market after a round of blackout and probably set a price. And we buy back our shares according to a pricing grid that we set with a maximum cap. So for example, in previous this last quarter, I think towards the end, after we got out of the Center Bank acquisition that was closed for a few days, we set the cap at $15.50 a share, but the price is going higher than that. So we won't really be buying back.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

We're not like some companies that might say, know, come hell or high water, no matter what the price, we're gonna retire 3% of our shares this year. And we don't care what the price is. We're just gonna spend the money about it. We really haven't done that. We try to keep some dry powder for dips in the price, And when it gets too expensive, they just come out of the market.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

So we haven't set that price yet for the fourth quarter. If I had a gun in my head right now, I'd guess it's somewhere in the $17 range. And we'd say, okay, at that below those prices, dollars 17 or 17.5, buy back stock. When it gets to be above that, wait, eat the powder dry and go back in on the buy on the dips. That's kind of how we do it.

[Daniel Tamayo, Vice President at Raymond James Financial]

Okay. That's helpful. And then lastly, I appreciate you can't give more color on the loan that drove the increase in NPLs, but maybe you can give color on where you think charge offs trend from here. They've been low for the first half of the year, I think probably lower than expectations.

[Daniel Tamayo, Vice President at Raymond James Financial]

So you guys thinking that is there a reason that they would be moving back up to a more normalized range in the back half? Or pretty clear in terms of the outlook for charge offs?

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Yes. I'll let Brian Sohocki, our Chief Credit Officer, answer that. Brian?

[Brian Sohocki, EVP & Chief Credit Officer at First Commonwealth Financial]

Yes. Thanks, Mike. We're obviously pleased with the quarter. I'd highlight that after experiencing the Centric charge offs in twenty twenty three and twenty twenty four, it was really diminished in the second quarter. We're down at $34,000 in that category.

[Brian Sohocki, EVP & Chief Credit Officer at First Commonwealth Financial]

Across the portfolio, charge offs have been at acceptable levels. Equipment Finance, Indirect have outperformed industry peers. As you mentioned, we reserved for this problem credit as well as others and work through those resolutions. But absent that one large relationship and with less headwind from Centric, I feel we've normalized. We've always referenced kind of a mid-twenty basis point charge off range, 25 to 30, we could see a return into those levels with the problem assets, but nothing else to know.

[Operator]

Your next question is from the line of Carl Shepherd with RBC Capital Markets.

[Karl Shepard, AVP at RBC Capital Markets]

Hey, good afternoon everybody.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Hey Carl.

[Karl Shepard, AVP at RBC Capital Markets]

Jim, I guess I wanted to start on the margin. Mentioned loan yield, I think, replacing 42 bps higher this quarter.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Yes. Right.

[Karl Shepard, AVP at RBC Capital Markets]

Any guidepost to maybe how that's gone in July and any way you wanna frame up, I guess, the quarter the best you can?

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Yeah. So all those forecasts we give on NIM really are predicated on continuing trends of the previous quarters and continue that kind of loan growth trajectory, and that's the best we can do. So we think we continue if the past repeats itself so we can go forward, we'll be able to keep that replacement made up. It's been pretty consistent. And so a little few basis points higher in the first quarter.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

I think it was 46 off top of my head and then 43 in the second quarter. So, as long as the Fed doesn't cut rates, that should persist for a while. And, obviously, even if the Fed does cut once, it'll still probably be positive. But there is somewhat of there there are some, definitely some estimates of loan production that go into that, that whole model that predicts the, that doesn't inform.

[Karl Shepard, AVP at RBC Capital Markets]

Yeah. Okay.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Carl Carl, I would just add that, of the 42 42 basis points increase, commercial fixed is really dragging that number up at, one eleven, and indirect installment loan is probably 73 basis points. So that's that's pulling it up and just and they had big volume. The mortgage and some of the other categories have nice replacement yields, but there's there's not a lot of volume, honestly. So I would expect those dynamics to stay in place.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

If I could just pile on to that as well, just what Mike was saying, if you look at the whole all the loan categories, about 40% of the new originations coming out were fixed and 60% were variable. The variable rate ones are just a matter of spread. So the replacement yields on those are they were nine basis points positive, not that much this quarter. But the fixed ones were 115 basis points positive. That's how you get to the overall 42 basis points.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

So the fixed replacement yields at 115 positive last quarter, that'll persist even through a few Fed cuts.

[Karl Shepard, AVP at RBC Capital Markets]

Okay. That's helpful. And then shifting topics, guess, M and A has picked up for the industry. You guys have a pretty good track record of looking at lots of stuff and doing a few things that make sense on the smaller side. Just kind of curious what discussions you guys are having and what makes sense and what your priorities are. Thank you.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Just a discussion or two, not a lot. I mean, I think Jim and I always say, we've looked at, I think, 70 loans or 70 opportunities over ten years, so about seven a year. I don't think that's really picked up for us and a big item, but we just just we tend to bow out on price on larger deals, and the smaller deals remain interesting to us. We also have to see a pretty good path of low risk execution before we get super excited as well. So maybe our box is a little tighter than others.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

We do like smaller deals. We think we can really leverage them into something a little bit more as we bring our different verticals in. And I think Jane Grebens over the years and Mike McHuman now, they're really good at indirect auto, mortgage, small business and just bringing them into the mix, maybe a little higher end investment real estate and then just really creating some magic. The key is to make sure the deposits keep up with the loan growth, and the focus is on funding the loans. And that's we'll be doing that even in quarters where the loans aren't growing.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Mike Mike or Jane, you wanna add anything to that?

[Jane Grebenc, EVP & Chief Revenue Officer at First Commonwealth Financial]

I don't think so, Mike. I think you've I think you did a good job of sort of explaining our psyche.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Yes. I agree.

[Karl Shepard, AVP at RBC Capital Markets]

Great. Thank you all.

[Operator]

Your next question is from the line of Kelly Mato with KBW.

[Charlie Driscoll, Equity Research Associate at Keefe, Bruyette & Woods (KBW)]

Hi guys. This is Charlie on for Kelly. Thanks for the question.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Hey. Hey.

[Charlie Driscoll, Equity Research Associate at Keefe, Bruyette & Woods (KBW)]

You guys saw some strong organic loan growth this quarter. Just wondering if you could expand on kind of what you're seeing in the pipeline, this level of growth is and general momentum is continuing? Thanks.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

I think the pipeline is pretty good. I do think that we're going to have a little a few more payoffs in the third quarter. Mike, do you want to expand on Yes. I think a little

[Mike McCuen, Chief Lending Officer & Executive Officer at First Commonwealth Financial]

bit of summer wall and some payoffs from the permanent market, but I expect activity to stay at this pace in the fourth once we get to the fourth quarter, a strong finish to the year.

[Charlie Driscoll, Equity Research Associate at Keefe, Bruyette & Woods (KBW)]

Okay. Great. And then specifically, if you could touch on the equipment finance portfolio, you guys had some good like momentum there. I know you brought on some new teams recently. Just like the growth there and if what you're seeing is sustainable and maybe what it could get up to in terms of a percentage of the portfolio? Thank you.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Yes. I'll start there and let finish. But we're about three, three point five years in. Those loans are typically five year loans. So we're going to hit a wall here in about one years point even if we continue to put on loans at the pace we are where the portfolio will probably flatten out a bit.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

And so I'd start there. And we just like the business. We like we have a professional that's been doing this for about three decades and a good team. And we just like the credit quality we're seeing and the types of assets he's putting on. Mike, what would you add?

[Mike McCuen, Chief Lending Officer & Executive Officer at First Commonwealth Financial]

Just mathematically, the growth was huge because it's obviously a start up operation. And I would just say that, so far, we're pleased with the type of assets we're financing and the credit quality of those assets. And furthermore, it's augmenting our bank relationships where, historically, we did not have equipment finance options for clients, especially tax leases. We now have that. So we expect incremental value from that relationship.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Yeah.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Also are

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

very we're very focused on growing C and I through our regional model from the smallest small business out of branches and 50 and a $100,000,000 loan hunks, up through commercial. And then most importantly, getting operating accounts and core deposit relationships from businesses to fund our growth.

[Charlie Driscoll, Equity Research Associate at Keefe, Bruyette & Woods (KBW)]

That's great. Thank you. I'll step back.

[Operator]

Your next question is from the line of Emmanuel Navas with D. A. Davidson.

[Manuel Navas, MD & Senior Research Analyst at D.A. Davidson]

Hey. Growth is really strong this quarter. You guys stay out in mid single digit core ex the acquisition level of growth? Or is there any upside to it? Maybe comment on the mix as well.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Yeah. I think the guidance will continue to be mid single digits because funding for us is an imperative and keeping pace with the funding. The mix, we would love to see that continue to rotate towards C and I, commercial real estate, owner occupied commercial real estate, and those loans that right now have a seven handle on them. And that being said, we're a larger community bank than most banks of our size with about 40% of the action. And we know that credit leads to cornerstone deposit relationships, particularly with younger households.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

So we want to have credit access for the good consumers, some 200,000 plus customers in our six markets. So we will remain open there. And we feel that even though the rates are a little lower, the replacement rates on those loans is very positive. Jane, anything you would add on consumer or Mike on commercial?

[Jane Grebenc, EVP & Chief Revenue Officer at First Commonwealth Financial]

Well, we've had a good run-in the consumer businesses, and that's all in market existing bank customers. So we have no interest in pinching that. Those are those are good relationships. As you said, small business, every one of those loans is really important to us. And the other consumer businesses, indirect, you know, replacement yields have been good, and mortgage is generally a for sale business for us.

[Jane Grebenc, EVP & Chief Revenue Officer at First Commonwealth Financial]

It's a fee business right now. We're not running it generally as a balance sheet business, so, we like them all.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

And I I would just say for the benefit of all the employees listening, and Mike and Jane insist upon core deposit relationships with every lending loan.

[Manuel Navas, MD & Senior Research Analyst at D.A. Davidson]

Okay. I appreciate the commentary. Shifting over to deposits, the the NIM guide, I understand it. Can you just dive into some of the dynamics?

[Daniel Tamayo, Vice President at Raymond James Financial]

And

[Manuel Navas, MD & Senior Research Analyst at D.A. Davidson]

you'd point out that there might be some expected loan yield pressure in the model and then some deposit cost increases to fund that future loan growth? Can you kind of flesh that out a little bit?

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Yeah, Emmanuel. It's Jim. I'll tell you exactly what I was thinking. I mean, the model is giving me numbers that are a little higher than the guidance I'm giving to you. But I happen to know, of some things that we're doing that are, that we're doing that were not in the model when the model was last updated.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

So I know that, for example, we looked at the deposit growth and loan growth in the second quarter and put the pedal down to the gas put the gas pedal down a little firmer on the deposit growth. So and deposit rates we're paying to get that growth because we want to make sure that we fund our loan growth with deposits as we go along. And so that's probably going to, put a little bit of pressure on the margin going forward. And then anecdotally, we hear about tightening loan spreads. We could say that you might hear those anecdotes in a lot of quarters, but you hear them more and more.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

And so for model, I'll just tell you, the model is saying that the NIM would be 3.974% in the third and fourth quarters respectively. But knowing what we know, we haircut that a little bit to give the guidance that we do give, which is low to mid 3.9 Now the low rate pricing yields, we have nine basis points of that. So if that just continues, that's nice. That just keeps going. If the Fed starts cutting rates, then that might be a little lower.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

But you do have those macro swaps coming off, which will be positive towards the end of the year. So all that goes into that guidance, and that's kind of giving me a little background of our thinking.

[Manuel Navas, MD & Senior Research Analyst at D.A. Davidson]

That that that's great. And and that that's the natural push against kind of the high end of of the NIM is that some point competition can step in. Like, how high could this get into next year? Is that just it just really depends on rates. Any thoughts on that type of discussion?

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Yeah. Yeah. Thanks for asking. It's early to talk about next year. I mean, the the math if if Fed doesn't cut rates at all, the math just keeps clicking away, the market just keeps going up, up, up, up, up.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

But as someone actually pointed out on last quarter's earnings call, you know, the the industry generally doesn't sustain NIMs over four percent for very long. It gets competing away on both the assets and liability side. And we it's like they're saying. And though we've already seen some of that and pressures on spreads on the, on the, commercial loan side and, you know, the need to price up deposit to get that growth. So the model would say the Fed doesn't cut rates.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

It just gets it's tremendous. But, realistically speaking, the, you know, the the as they say, the trees don't go to the sky.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Yeah. I I would just add just a little counterintuitively. We if rates settle a bit, I think it primes the pump for demand, and we have a broad business model for consumers' business. And I think we have more business, more cross selling opportunities, and consumers are in better shape as our small businesses, the SBA business, there's more fee income. So I just think Jim and I and the team, Jane and Mike, we just have tried to make it fifty-fifty variable fix.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

So we do well irrespective of where interest rates go, and I think our fee income our fee businesses would benefit from that. So I I I think either way, we can do quite well.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Yeah. And that actually gives me an opportunity, Manuel, if you don't mind, three dimension, Mike, since you're talking about that kind of view over the next year, we do have more macro swaps maturing next year. There's 150,000,000 in May 2026 and another $25,000,000 on October 26. So that will help the margin. So even in a world where the Fed in our forecast, there are four more cuts in 2026.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

The, model is predicting a NIM that stays above slightly above 4% for next year. So but, we'll know more as we really work on sharpening our pencils on budgets and get a little more accurate forecast in the earnings calls for the third and fourth quarter this year.

[Manuel Navas, MD & Senior Research Analyst at D.A. Davidson]

K. That's great. Anything you wanna add? I'm I'm all I'm all ears.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Thanks.

[Manuel Navas, MD & Senior Research Analyst at D.A. Davidson]

Thanks. Thanks for the commentary.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Thanks, Noah.

[Operator]

Your your next question is from the line of Matt Breeze with Stephens Inc.

[Manuel Navas, MD & Senior Research Analyst at D.A. Davidson]

Hey. Good afternoon, everybody.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Hey, Matt.

[Matthew Breese, Managing Director at Stephens Inc]

You know, maybe to start, just a modeling question. Securities were down a bit this quarter and now sit at 13 and a half percent of total assets. That feels a little low versus where we've been recently. Maybe not, but it just feels a little low versus where we've been. Is that right?

[Matthew Breese, Managing Director at Stephens Inc]

Do you like to be kinda in the 14 range, or is 13 and a half adequate?

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

No. We're okay with that. 13 and a half is adequate. We wanna make sure we have securities on hand to pledge against borrowings and other things we needed to use those for. We it's down a little bit this quarter because our purchase activity was slow this quarter.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

We had prepurchased some in previous quarters to get ahead of it a little bit, and so didn't feel the need to to buy much this quarter. So we don't feel from a liquidity standpoint that we need a higher percentage. We have so much available liquidity, and real good there's a slide in our on our, webcast presentation that talks about this. So we have source of liquidity backed by assets that we can pledge. I think it's over $5,000,000,000 So we don't feel like we need to keep 15%, 20% of our assets and securities just for the sake of on balance sheet liquidity.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Our liquidity is very strong without that. So it's we're we're very, very comfortable with where it's at.

[Matthew Breese, Managing Director at Stephens Inc]

Got it. Okay. A couple of bigger picture ones. You know, strategically, just thinking about your markets, where from a market share position standpoint do you feel like there's the most room for opportunity? We hear you talk a lot about Ohio as being an engine for growth.

[Matthew Breese, Managing Director at Stephens Inc]

Can that well continue for a lot longer? And if not, where on the map might we see you go that could be the next kind of vehicle for the next Ohio for you?

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

I honestly believe in, perhaps I'm delusional, but I think between, Cincinnati, Cleveland, Columbus, Pittsburgh, our community markets in Western PA, we could build out a bank that's two times the size. Because we're just not a market maker. We're kind of on the fringes of market share, and we just see a lot of crumbs coming off the table from bigger banks. And I just I just feel like we can fill it in and love to add some rural depositories, you know, in those metro markets, maybe do a little bit of de novo. We have some cities between in Ohio like Dayton.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

We also have opportunities in Western PA. And then we really haven't penetrated all of our lines of business in each of our markets. I just think within these markets, we can grow the company substantially. That doesn't mean we wouldn't go to Northern Kentucky or we wouldn't do something contiguous. We just feel like we have to be able to extend the brand thoughtfully and be able to cover, just not outkick our coverage, as they say in football.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

And so I don't know that we're super interested in just getting to the next market. I think we can grow where we're at, honestly. Jane or Mike, anything you would add there?

[Mike McCuen, Chief Lending Officer & Executive Officer at First Commonwealth Financial]

You know, the the recent acquisition is a good example of that. It's, it's in market. It gives us more higher profile. But even with that, we're still, you know, maybe tenth in market share in that market, so we have a lot of upside. Those are the kind of things that that we absorb quickly, and we can move on to the next one and grow that market further.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Yeah. And and we haven't really penetrated our fee income businesses. We've We're really good in Community PA and in Pittsburgh, but we're just getting there with our regional model with businesses like wealth and insurance and and other things that we do pretty well at and SBA. And so I I'm I'm pretty enthused just about Western PA and Ohio, honestly.

[Jane Grebenc, EVP & Chief Revenue Officer at First Commonwealth Financial]

Yeah. Mike, to to put a finer point on it, two things. One, our product penetration, for the existing households we have still leaves a lot of room for growth. So as our execution gets better, there's a lot of embedded, upside there. And there's a lot of terrific small businesses and middle market lower middle market companies as we drive from Pittsburgh to Cleveland, and we're interested in all of those.

[Jane Grebenc, EVP & Chief Revenue Officer at First Commonwealth Financial]

So and we've spent some money on our treasury management offerings so we can bank those companies in addition to just lending to them.

[Matthew Breese, Managing Director at Stephens Inc]

Appreciate all that. Maybe maybe just as a follow-up, you know, senator McCormick a couple weeks ago, few weeks ago held a conference in Pittsburgh around AI and data centers and power investments in Pennsylvania, I think, to the tune of maybe, like, $90,000,000,000 or just just a huge number. Curious if you attended, what you heard. How beneficial could this be to the area and if any of these forms of real estate or investments are, you know, directly or or indirectly helpful to you all? That's all I had. Thank you.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Yeah. We see it all over. We see it right in our backyard in Indiana County. There's a $10,000,000,000 investment for a power plant, just for a data center, and it's a conversion of a coal and natural and it'll be a natural gas power plant. And they're really firing up really the Marcellus Shale to help fuel that.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

And we're seeing it all over. We're seeing it in the infrastructure with the gas pipelines, the trucking, everything. And not to mention the plastics that complement the natural gas. So I don't know. I just think this area, particularly Pennsylvania, has been harder hit over the last twenty five years.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

I just think the future could be brighter, and we're seeing a significant investment everywhere.

[Matthew Breese, Managing Director at Stephens Inc]

Appreciate it. Thank you.

[Operator]

Your next question is from the line of Daniel Carnitas with Janney.

[Dan Cardenas, Director - Banks & Thrifts at Janney Montgomery Scott]

Hey, good afternoon, guys.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Good afternoon.

[Dan Cardenas, Director - Banks & Thrifts at Janney Montgomery Scott]

Quickly returning to to credit quality. Of of this floor plan nonaccrual, what what percentage of your total nonaccrual portfolio does this represent? And then second, what's the overall health of the remainder of the portfolio?

[Brian Sohocki, EVP & Chief Credit Officer at First Commonwealth Financial]

Sure. I can take that. I'm going to have to have you repeat the second part. I couldn't hear it entirely. But it's approximately just over 30%.

[Brian Sohocki, EVP & Chief Credit Officer at First Commonwealth Financial]

Our non accruals, as you saw that I may have referenced a nonperforming bucket, increased $40,000,000 to just shy of 100 and and 31.8 of that was the floor plan. So pretty pretty straightforward on that 100 basis. It just just over 30%.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

Brian, because you mentioned that the the remainder of the increase in NPLs was from the acquisition, right?

[Brian Sohocki, EVP & Chief Credit Officer at First Commonwealth Financial]

Sure. Yeah. So and that's a good point, Jim. So the remainder, if you look at the $40,000,000 increase, dollars 31,900,000.0 from the dealer floor plan, dollars 8,400,000.0 from Center Bank acquisition. So absent those two events, we had a $300,000 minimal, but $300,000 decrease in the quarter, we would have went from 65 basis points to 63 basis points.

[Dan Cardenas, Director - Banks & Thrifts at Janney Montgomery Scott]

Okay. And so is this large loan, Floorplan loan, is that a legacy, an FCF legacy loan? Or was that acquired?

[Brian Sohocki, EVP & Chief Credit Officer at First Commonwealth Financial]

No. Yes, I'll tell you a little bit about the dealer floorplan portfolio. It is legacy. None of our floorplan has been acquired. At sixthirty, our floorplan segment was $154,000,000 of outstandings, so rather manageable small portfolio, 23 customers.

[Brian Sohocki, EVP & Chief Credit Officer at First Commonwealth Financial]

And this was the only one over $20,000,000 of exposure. We just have two others over $15,000,000 with the rest really being granular inside $10,000,000 of exposure. And portfolio is performing well, strong weighted average risk rating in compliance. Here, we really had an isolated event with the one dealer, happened to be the largest.

[Dan Cardenas, Director - Banks & Thrifts at Janney Montgomery Scott]

Okay. Excellent. And then in terms of just your larger relationships, is this like in the top 20 or 25 overall?

[Brian Sohocki, EVP & Chief Credit Officer at First Commonwealth Financial]

It was. We manage our borrowers over really, we've monitored internally over $15,000,000 There's really about 10 relationships over 25. So this is one of the larger.

[Dan Cardenas, Director - Banks & Thrifts at Janney Montgomery Scott]

And how are those relationships performing?

[Brian Sohocki, EVP & Chief Credit Officer at First Commonwealth Financial]

Very well. That portfolio is very strongly risk rated. All but one, I would comment or two would be better than past watch. So it's a strong portfolio. No early signs of or any early indications of weakness in that portfolio.

[Dan Cardenas, Director - Banks & Thrifts at Janney Montgomery Scott]

Okay. Did this credit have any impact on the margin this quarter?

[Brian Sohocki, EVP & Chief Credit Officer at First Commonwealth Financial]

There was a move to nonaccruals late In May. That's 300,000.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

It did. Yeah. So it's probably took away a a basis point or two.

[Mike McCuen, Chief Lending Officer & Executive Officer at First Commonwealth Financial]

Reversal of interest in May or April.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

That's right. Yeah. Yeah. Don't know you heard that. So we we went to non accruals, reversal of interest about 300,000.

[James Reske, EVP, CFO & Treasurer at First Commonwealth Financial]

So that would have hit the NIM to maybe maybe rounded to one basis point.

[Daniel Tamayo, Vice President at Raymond James Financial]

Okay.

[Dan Cardenas, Director - Banks & Thrifts at Janney Montgomery Scott]

Excellent. Excellent. I think that's it. You've answered all my other questions. I appreciate the appreciate the time. Thank you.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Thanks, Dan.

[Operator]

At this time, there are no further questions. I will now hand the call back over to Mike Price, President and CEO.

[Thomas Michael Price, President, CEO & Director at First Commonwealth Financial]

Very good. Thanks for the questions. It's always good to engage. Excited about the future of our company, to grow organically, remain disciplined with M and A to make sure that our low cost deposits keep pace with our commercial loan growth and just do a better job of cross selling our clients and bringing them fee income opportunities. But just thank you, and just have a good day.

[Operator]

This concludes today's call. Thank you for joining. You may now disconnect your lines.

Participants

Executives

• Ryan Thomas, Vice President / Finance and Investor Relations
• Thomas Michael Price, President, CEO & Director
• James Reske, EVP, CFO & Treasurer
• Brian Sohocki, EVP & Chief Credit Officer
• Jane Grebenc, EVP & Chief Revenue Officer
• Mike McCuen, Chief Lending Officer & Executive Officer

Analysts

• Daniel Tamayo, Vice President at Raymond James Financial
• Karl Shepard, AVP at RBC Capital Markets
• Charlie Driscoll, Equity Research Associate at Keefe, Bruyette & Woods (KBW)
• Manuel Navas, MD & Senior Research Analyst at D.A. Davidson
• Matthew Breese, Managing Director at Stephens Inc
• Dan Cardenas, Director - Banks & Thrifts at Janney Montgomery Scott