First Commonwealth Financial Q2 2026 Earnings Report

First Commonwealth Financial EPS Results

• Actual EPS: $0.44
• Consensus EPS: $0.42
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

First Commonwealth Financial Revenue Results

• Actual Revenue: $139.42 million
• Expected Revenue: $137.48 million
• Beat/Miss: Beat by +$1.94 million
• YoY Revenue Growth: N/A

First Commonwealth Financial Announcement Details

• Quarter: Q2 2026
• Date: 7/28/2026
• Time: After Market Closes
• Conference Call Date: Wednesday, July 29, 2026
• Conference Call Time: 2:00PM ET

First Commonwealth Financial (NYSE:FCF), headquartered in Indiana, Pennsylvania, is a bank holding company whose primary subsidiary is First Commonwealth Bank. Established in 1889 as Indiana National Bank, the company has grown through a combination of organic expansion and strategic acquisitions to build a diversified platform of commercial banking, retail banking and wealth management services.

First Commonwealth offers a comprehensive suite of financial products, including deposit accounts, personal and business lending solutions, mortgage origination and servicing, treasury management, and trust and investment services. The company tailors its offerings to meet the needs of individuals, small businesses, middle-market companies and nonprofit organizations, emphasizing personalized service through both its branch network and digital channels.

Operating in Pennsylvania, Ohio, West Virginia, Maryland, Kentucky and Florida, First Commonwealth leverages its regional presence to deliver local expertise and relationship-driven banking. The company maintains a focus on community engagement and economic development in the markets it serves, supporting growth through both traditional banking solutions and specialized financial guidance.

First Commonwealth Financial Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Core EPS rose to $0.44 from $0.37 in Q1, while core ROA reached 1.46% and the efficiency ratio improved to 52.24%. Net interest margin expanded nine basis points to 4.01% as funding costs declined, loan yields improved, and excess cash was invested in securities.
• Neutral Sentiment: Second-quarter loans grew 1.97% annualized and deposits grew 2.03% on average, but period-end deposits declined 5.77% annualized as the bank priced time deposits less aggressively. Management expects loan growth to return closer to its mid-single-digit target in the second half, while deposit competition is expected to keep NIM in the low-4% range.
• Negative Sentiment: Commercial loan payoffs reached a record approximately $740 million after $630 million in Q1, offsetting $693 million of originations and weighing on growth. Charge-offs, classified assets, and non-performing loans remain elevated, although criticized loans, watch balances, and delinquency trends improved modestly.
• Positive Sentiment: The board authorized an additional $75 million share repurchase program after the company bought back roughly $12 million of stock in Q2, and management indicated it may become more aggressive with repurchases. Tangible book value per share increased to $11.58 and CET1 improved to 12.6%.

Presentation

[Operator]

Hello, everyone. Thank you for joining us, and welcome to the First Commonwealth Financial Corporation Q2 2026 earnings release conference call. After today's prepared remarks, we will be hosting a question-and-answer session. If you would like to ask a question, please press star one to raise your hand, and to withdraw your question, press star one again. I will now hand the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead.

[Ryan Thomas, VP of Finance and Investor Relations at First Commonwealth Financial Corporation]

Thanks, Jonah. Good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation second quarter financial results. Participating on today's call will be Mike Price, President and Chief Executive Officer, Jim Reske, Chief Financial Officer, Mike McCuen, Chief Banking Officer, and Brian Sohocki, Chief Credit 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 have also included a slide presentation on our investor relations website with supplemental information that will be referenced during today's call. Before we begin, I need to caution listeners that this call will contain forward-looking statements.

[Ryan Thomas, VP of Finance and Investor Relations at First Commonwealth Financial Corporation]

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 statements. 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. Reconciliation of these measures can be found in the appendix of today's slide presentation. With that, I will turn the call over to Mike.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

Thank you, Ryan. Second quarter financial performance at First Commonwealth and highlights include core EPS of $0.44, up $0.07 over the first quarter, a core ROA of 1.46%, and core pre-tax, pre-provision ROA of 2.14%, a core efficiency ratio of 52.24%, and a net interest margin of 4.01%, which expanded nine basis points as a function of lower deposit and funding costs, higher loan yields, and securities purchases. All key income statement categories moved positively quarter-over-quarter to include net interest income, provision expense, non-interest or fee income, and non-interest expense. Second quarter loan growth of 1.97% annualized was matched by average deposit growth of 2.03%. Loan growth for the quarter was led by equipment finance, commercial construction, branch-based HELoan lending, and our indirect lending business. All of which offset contraction in CRE and C&I lending.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

The quarter was notable due to a record quarter of commercial loan payoffs of roughly $740 million, following a record first quarter of commercial loan payoffs of roughly $630 million. Commercial loan originations increased to approximately $693 million in the second quarter. Although charge-offs remain elevated as we continue to resolve identified problem credits, credit quality improved modestly in the second quarter with lower non-performing loan balances alongside stable delinquency and allowance levels. Other items that may be of interest to investors include for the year, Community PA and Cincinnati, two of our five regions, have led the way with both deposit and loan growth. Fee income grew in part year-over-year due to nice traction in mortgage and wealth management businesses. The team continues to find uses for AI.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

We've felt like we're on our front foot with IT and technology for years, particularly with our fintech partnerships. Let me just give you one AI example. In our call center, our vendor turned on a feature where AI listens to the call and pops the policy and procedure to the employee to help navigate a solution for our clients. Oftentimes they're navigating up to six different systems at one time. Just one small example of probably a dozen or more. With that, I will turn it over to Jim Reske, our CFO.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Thanks, Mike. Mike has already summarized the second quarter's financial performance, I'll try to provide some additional detail around the margin, fee income, and expenses as usual. The net interest margin improved by nine basis points to 4.01%. While average deposits grew by 2.03%, period end deposits were down at an annualized rate of 5.77%, with about two-thirds of the decline coming from time deposits. With excess cash on hand and limited loan growth, we priced time deposit promotions less aggressively compared to competitors in the second quarter, resulting in outflows towards the end of the quarter. That tighter deposit pricing obviously helped a NIM. About six basis points of the nine basis points of improvement came from lower funding costs, with the cost of deposits falling by five basis points to 1.74%.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

The other three basis points came from the asset side of the balance sheet, driven by a combination of higher loan yields and the investment of excess cash into securities. The rate environment continues to allow us to reprice our loan book upward, with fixed-rate loans repricing upward by 61 basis points. The yield on the loan portfolio improved by four basis points from 6.03%-6.07%. The expiration of $150 million in macro swaps on May 1st contributed to the increase in loan yields. Looking ahead to the second half of 2026, we see net loan growth picking up as production continues and payoffs normalize, returning loan growth closer to our mid-single-digit guidance, while the NIM will benefit from the rate environment but suffer from stiffer deposit competition. We expect that will leave the NIM in the low 4% range.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Fee income was up by $2.3 million from last quarter. Fee income benefited from an $806,000 gain from the redemption of a $6.6 million sub-debt instrument inherited from a prior acquisition, along with a $450,000 BOLI death claim, which together accounted for about $1.3 million of the $2.3 million of improvement. We also had an increase of about half a million dollars in interchange and deposit service charges. Our previous guidance for fee income to range from $24 to $25 million per quarter for the remainder of this year remains unchanged. Non-interest expense improved by $1.3 million from last quarter. Salary and hospitalization expense did go up in the second quarter, offset somewhat by a vendor rebate of approximately $450,000.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

The quarter-over-quarter comparison benefits from a few discrete expense items that hit us in the first quarter, including about half a million dollars of snow removal costs in the first quarter and a half-a-million-dollar FHLB prepayment penalty in the first quarter. Our previous expense guidance of about $74 to $76 million per quarter remains unchanged for the remainder of 2026. We repurchased approximately $12 million in stock last quarter at a weighted average price of $18.66. We had approximately $13 million remaining in repurchase authorization at the end of the second quarter. Yesterday, our board approved an additional $75 million in repurchase authorization. We intend to continue share repurchase activity in the third quarter. Tangible book value per share grew to $11.58, up from $11.34 last quarter and $10.63 a year ago.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Compared to last quarter, our CET1 ratio has improved from 12.5% to 12.6%, and our tangible common equity ratio increased from 9.7% to 9.9%. With that, we'll take any questions you may have.

[Operator]

Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. We ask that you pick up your handset when asking a question to allow for optimal sound quality, and if you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Our first question is from the line of Daniel Tamayo at Raymond James. Your line is open. Please go ahead.

[Daniel Tamayo, Analyst at Raymond James]

Thank you. Good afternoon, guys. Maybe we start on the credit side. Just curious if you could provide some details. I guess the bigger increase, and neither was a huge increase, but a little bit of an increase in classified loans. If you could kind of give us some color on what was driving that in the quarter.

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

Yeah. Daniel, I can jump in. Maybe just taking a look at criticized overall to start. As a whole, the overall trend remained relatively stable. We ended the quarter at 3% of loans, essentially unchanged. Within that portfolio, however, we saw some migration between special mention and substandard. It was really about $10 million and two credits. That resulted in the modest increase in classified assets that you saw. Importantly, the migration occurred within the previously identified criticized relationships, rather than a broad influx of new problem credits. As a result, the classified balances increased, but we didn't see a corresponding increase in the overall level of criticized assets, which was a positive. As Mike said in his comments, at the same time, several indicators that we view as leading measures of the portfolio direction improved during the quarter. Watch balances decreased by some $30 million.

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

Delinquency was stable, and the other portfolio asset metrics improved as well as we dug down into the portfolios. All that said, classified assets and non-performing loans remain elevated above our long-term objectives, and we'll continue to work through those in the future quarters and expect a little bit of a degree of volatility or variability, I should say, in charge-offs and problem loans as we go through those categories.

[Daniel Tamayo, Analyst at Raymond James]

Thanks for that. Yeah, that was my next question, was just on the charge-off side. I'm just curious if you can put a little finer point on that in terms of what we may see in terms of charge-offs near term before they come back to somewhat normalized levels.

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

Yeah, it's hard to put an exact number on it. You saw that we increased reserves in the first quarter. If you go back to last quarter, we had three commercial credits with reserves, kind of total about $11 million. One of those worked through the process in the second quarter and was part of the charge-offs. We had a individual credit that had a $3.4 million charge-off and a prior period reserve of $3.25. Yeah, as we go through that, we'd expect a little bit of action from those reserves, and individual credits, before we revert back to kind of where we've seen our charge-offs. If you look at a three and five-year history, we've been right about 30 basis points to 32 basis points. We'll see ourselves revert back to that norm over time.

[Daniel Tamayo, Analyst at Raymond James]

Okay. Thank you. That's helpful. Then maybe just quickly for you, Jim, on the margin guidance. Appreciate the low fours thoughts. It sounds like that means maybe you're expecting a little bit of expansion here in the back half. As you think about it holistically, is that about the levels you think that you might stay in the low fours as these kinds of competing factors on both sides start to stabilize? Or you think there's the potential for continued expansion in 2027?

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Yeah. I'm hesitant at this point to give that guidance into 2027, Dan. I'm just trying to look just for the remainder of this year. The runs we did, the most recent ones we did had the margin drifting up for the second half of this year. I can tell you even explicitly the run we did, the last run had the margin with no rate increases at all going to 4.08% in the fourth quarter and 4.13% if there was one hike in September. That latest run I'm taking with a grain of salt for my guidance because that didn't include the latest and greatest information, we have about deposit competition, which is really heating up in our market. We were able to bring deposit costs down in the second quarter in a really healthy way, which is good, especially after having lagged some peers doing that.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

We were able to bring that down when we saw an outflow of CDs, and now we see deposit pricing competition picking up. All that works together to bring that guidance into the low fours. At this point, the crystal ball doesn't go out into 2027 yet.

[Daniel Tamayo, Analyst at Raymond James]

Understood. Right.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Okay.

[Daniel Tamayo, Analyst at Raymond James]

I appreciate you going over those. Yeah, the pushes and the pulls. Appreciate the answers, guys. Thank you.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Thank you.

[Operator]

Your next question is from the line of Karl Shepard at RBC Capital Markets. Karl, please go ahead.

[Karl Shepard, Analyst at RBC Capital Markets]

Mike, you touched on the record payoffs again this quarter. I guess, could you frame up maybe what you see as a more normalized range? Do you have visibility into that in the third quarter and maybe a little bit into the fourth quarter as well?

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

We do expect them to subside somewhat. We think we've had probably a half a dozen or so larger ones that were more one-offs and just outright sales and getting out of real estate. A lot of them obviously are construction. A lot of them are planned going to the permanent market. That being said, we just feel regarding loan growth, we have good growth in construction fundings. We've hit the tipping point there. Business banking in our corporate bank, we have good momentum in each market. Our consumer is growing and probably most importantly, talent and execution just continue to improve. The first half of the year, we grew two of our five regions. We expect to grow all of them in the second half of the year. Just momentum and just getting beyond this.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

It's not perfect, but that's kind of my best take from the vantage point in July.

[Karl Shepard, Analyst at RBC Capital Markets]

Okay. I appreciate that. I know this comes up on every quarterly call, on the buyback, you've gone over kind of your framework before, the authorization's a little bit larger than you've had. Anything you want to message with the bigger number out there this quarter? Thank you.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

Yeah. We're just drifting up all the time. Jim and I put our heads together, and it's 9.7% and 9.8%, and it's going to continue to drift even if we start to hit our loan growth targets. We just thought it might be prudent to get a little larger authorization in place. Jim, why don't you add to that?

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Yeah, just exactly that. The capital ratio keeps drifting upward and upward. Like Mike said, even if we have plenty of capital to first and foremost capitalize organic growth, which is the first priority. Even then, if the capital TCE ratio gets to where it's pushing 10%, it goes beyond 10%, it's very hard to earn a respectable return on equity. Now we were really pleased to see our TCE go over 15% this quarter. It's harder and harder to do that if you have excess capital. We bought back some shares. I think when I look back now in the second quarter, we purchased it at $18.66. I wish we bought back a whole lot more given the price today. That we'll probably be a little more aggressive going forward.

[Karl Shepard, Analyst at RBC Capital Markets]

Thank you both.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

Thank you.

[Operator]

Your next question is from the line of Kelly Motta at KBW. Kelly, please go ahead.

[Kelly Motta, Analyst at KBW]

Hi. Good afternoon. Thanks for the question. I think putting together some of your margin commentary, one thing you noted was the increased deposit competition. I was hoping you could provide color as to what you're seeing in your markets, one. Two, your balance sheet flexibility allowed you to be a little bit more discerning. Just wondering how you're thinking about that loan-to-deposit ratio and the additional flexibility you may have there. Thank you.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

Yes, specifically, and I'll let Jim amplify, but on the deposit side, our money market, we feel we're very competitive, but more on the CD side. We felt that pressure really just in the last month or so. Jim?

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Yeah. That's right. The competition, Kelly, is really in the time deposits. If I look back in COVID, we just had [inaudible]. We didn't have a very large time deposit book. We had run some of that down, but now it's a fairly decent size time deposit book, about $1.7 billion. We had so much excess cash in the second quarter that we felt like we didn't need to be so aggressive, and we pulled back a little bit, and lo and behold, towards the end of the quarter, right in June, as Mike was saying, the deposit competition heated up and we saw the outflow so we need to react to that.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

To bring you up to the minute, we saw even just yesterday a couple of more competitors raising CD rates to have four handles on them. The competition really is not so far anyway in the money market product. That's still in the mid threes. The CD competition is heating up, and it's across the board. It's not just online banks, it's not just credit unions, it's not just smaller banks, it's everybody. You cannot ignore that and maintain your CD book. We've raised rates already to do that, and we'll continue to do that to grow our deposits to fund our loan growth.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

Kelly, forgive me, the second part of your question?

[Kelly Motta, Analyst at KBW]

Just the flexibility on balance sheet, and you did have a bit more flexibility this quarter to let some deposits go. Wondering where you're comfortable with taking that loan to deposit ratio.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

That's right. We like it where it is, in the low 90s. It's not binding. Go ahead.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

Yeah. We've worked hard to get there. After Silicon Valley, we've really grown our deposits about 5% a year each year. We've worked it down from 96, 97. It feels like a good place to be, and we don't want to give that away. Quite frankly, our customers didn't have rate with us. They were just loyal customers, and they were getting rates somewhere else. We've worked hard to gather the CD book. We appreciate it. It's come mostly from our own customers, and we just don't want to give that away. It remains a nice way to continue to grow deposits, and our loan yields are good.

[Kelly Motta, Analyst at KBW]

Got it. That's helpful. On the growth and the payoffs, you saw, you noted that there was pressure on CRE, which I think you had touched on earlier, and also C&I. Can you provide color as to where line utilization stands and how that compares to normalized levels and any dynamics factoring in there? Thank you.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Yeah, it's drifted up. We've been monitoring that and watching that. Just the line utilization on revolving commercial lines and C&I lines drifting up over the last three quarters. The one commentary I'd give you, Kelly, is the production's been really good. It's just the payoff crescendo has continued and gotten stronger. If that crescendo, the payoff slows down even a little bit, we'll have really good loan growth.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

Right.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Now, of course, that'll put pressure on the deposit growth to make sure we fund that loan growth with deposits, but it'll all work together. We're really pleased with just the production side.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

Kelly, we also feel like we have six buckets of lending: commercial real estate, C&I, equipment finance, mortgage, branch-based consumer lending, and indirect auto. Now, in the second half of the year, just going in, we have four of those six growing between equipment finance, indirect auto, HELOC, HELoan, and probably going to get there with C&I and commercial. Just we're pretty broad-based, and we just feel like we have momentum in those key businesses. Mortgage, we're still selling most everything we originate. By the way, mortgage is a good story year-over-year on the fee side, up almost $1 million, I believe. We just have good pipelines despite the rate environment. We just feel good about loans and where we're at.

[Kelly Motta, Analyst at KBW]

Last question, if I could just slip it in, is just on that, it sounds like everything on the production is very constructive. What do you think is driving that? What are you seeing as you're talking about borrowers to your borrowers? Are they just more comfortable where we are now? Just any color would be really helpful as we think about what's been impacting that uptick. Thank you.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

On mortgage or on all?

[Kelly Motta, Analyst at KBW]

I was talking mostly commercial, but I'm happy with whatever color you can get. Thanks.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

I just think our regional model has coalesced with really good leadership and new leaders over the course of the last two years, just better and better teams that are just getting more sophisticated. We really like the fact that our business banking, which is the lower end of commercial, has really gathered momentum in the last year and a half to two years. We've added a lot of professionals to that space. That's obviously very granular. On the lower end, it comes with a lot of deposits. At the end of the day, it does get down to talent and execution. We've added talent on that team. The other thing is we've complemented with just a pretty strong TM function that's getting better and has more capability because our borrowers need more than just a loan. They have a deposit relationship.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

Even we're doing a better job of cross-selling our wealth management, our insurance. You see that in the numbers and how we've recouped what we've lost with the $13.5 million of crossing $10 billion. It's just all coming together and we feel like the best years are ahead of us with the team we have now.

[Kelly Motta, Analyst at KBW]

Got it. Thank you so much for all the color. I'll step back.

[Operator]

Your next question is from the line of Manuel Navas from Piper Sandler. Your line is open. Please go ahead.

[Manuel Navas, Analyst at Piper Sandler]

Seems like you guys have some nice confidence on the production levels in terms of loan growth. How fast can you see loan growth kind of get back to mid-single digits? Is it as soon as third quarter? Do you need it to build a bit more? Just kind of some thoughts on the pipeline here into the near term, back half of the year.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

Yeah. Good question. Last quarter, we sold a $200 million portfolio, and we had a down draft of another $100 million. It was quite a climb from that spot in the payoffs we had with more payoffs to get to 2% annualized.

[Manuel Navas, Analyst at Piper Sandler]

Cool.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

We do feel like we have some momentum in that the mid-single digit is good guidance for us. As you've seen over the years, we really believe deeply in the concept of operating leverage. We manage with a lot of cost discipline, and we feel like 4%, 5%, 6% is enough to really leverage into good earnings per share growth and value creation. Another lever we like is we just feel like we can do a better and better job with fee income. That's one of the reasons we've really moved pretty decisively to a regional model. We report by line of business, but we execute and we win in discrete regions throughout the company. That's the conclusion we came to. It's a little bit more expensive model, but we have good leaders, and we're confident that it'll create differentiation over time.

[Manuel Navas, Analyst at Piper Sandler]

What's your appetite for continued talent acquisition? Does that pipeline continue, or are you kind of seeing it try to produce now and taking a step back?

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

I'll share you an anecdote, is that one of our very wise leaders put in a ghost position. What he meant by that was, "I want to be able to hire the right person at any time that I find her or him." I love that. I love the confidence. That's the way we feel. When we find good people, we've got to find a way to get them on the payroll and move the company forward with the right kind of rainmakers. Consequently, we've lost very few of them over the years. That speaks to the culture and the good leaders that we have. Not everybody has caught on yet, but after this call, I guess they will. I thought that was cool.

[Manuel Navas, Analyst at Piper Sandler]

I appreciate the color. Can I shift over to NIM for a moment? What are kind of new loan yields coming on at? I'm just trying to think of the marginal aspects to it and how big of a shift, I guess you say CD books more like 4.5% at competitors. Where is your marginal deposit cost right now? If you could kind of walk through those near-term kind of drivers of NIM, please.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Yeah. I'll try to answer this, if I forget part of the question, just refresh my memory. I think the new cost of deposits blended overall coming on was 3% for a good part of the quarter, that changed more towards the end of the quarter. With the deposit competition, that's going to drift upwards. That's if you take the blended average of all the deposit growth categories, including NIB. You get kind of a 3% cost of deposit acquisition cost overall. Like I said, the CD rates are definitely going to be in the promotion rates are going to be in the fours going forward. The loan yield coming on, new loans coming on in the mid sixes, 64. Loans coming off a little bit lower than that's why you get deposit and replacement yield so far.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

The differential is much wider in the fixed rate loans. The variable rate loans, if you look at all the production, variable's about two-thirds of production, fixed is about a third of production, roughly. The positive replacement yields that I mentioned in my prepared remarks of 61, that's on the fixed rate. The variable rate, if the spreads maintain the same level, the replacement yields are net to about zero. It fluctuates a little bit quarter-over-quarter, it's not much. That's the dynamic there.

[Manuel Navas, Analyst at Piper Sandler]

Can you talk a little bit about the repricing potential on the fixed rate side over time?

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Yeah.

[Manuel Navas, Analyst at Piper Sandler]

Maybe the rest of this year-

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Yeah

[Manuel Navas, Analyst at Piper Sandler]

into next year?

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Yeah. If the Fed holds where they are now, we're really happy with 61 basis points on the fixed rate side. That's on the loan side. On the security side, it was better, but it's skewed a little bit because we accelerated some securities purchases with the excess cash

[Jim Reske, CFO at First Commonwealth Financial Corporation]

The securities portfolio yield is low compared to the opportunity right now of new rates. We're able to purchase new securities in the low fives right now. That replacement yield there is pretty strong. If the Fed just holds where they are for a while, we'll eventually reprice the whole loan book, except for the low-rate mortgages that are hanging on until that aren't prepaying, until they move or the house burns down.

[Manuel Navas, Analyst at Piper Sandler]

Is the fixed rate volume still about a third of overall volume?

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Yeah, overall.

[Manuel Navas, Analyst at Piper Sandler]

Yeah.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

It's all categories. That's not just commercial, that's everything. HELOCs and equipment finance, everything. Hope that helps a little bit.

[Manuel Navas, Analyst at Piper Sandler]

Thank you for the commentary. No, it definitely helps. Thank you for the commentary. I'll jump back into the queue.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

Thanks, Manuel.

[Operator]

As a reminder, if you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. Your next question is from the line of Matthew Breese at Stephens. Matthew, please go ahead.

[Matthew Breese, Analyst at Stephens Inc.]

Yes. Thank you. Good afternoon. I guess, I don't know if you've fully answered this, but what gives you confidence that we're going to see a slowdown in payoffs? Is it just that the current pace is unsustainably high in the normal, such a lower amount that we got to get there at some point, reversion to the mean? The other question I have was, if you strip away equipment C&I growth, it looks like non-equipment-based C&I growth has been down for maybe four consecutive quarters. Is that expected to turn around as well? What does the pipeline look like there?

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

Great question. I think the anecdote around each payoff is an important factor in our guidance on that and the size of the payoffs. We just don't have that many loans over $50 million anymore. On the C&I side, we're working really hard to grow it and to grow it granularly with business banking and middle market loans. We've worked from a decade ago, we had all the SNCs. We don't have $100 million of SNCs left, if that. The composition of the C&I book over the years has changed. When you talk about the last four quarters, just the pipelines and particularly the pipelines in business banking and really that under $5 million range has grown as we've invested in that team the last year plus. I hope that's helpful.

[Matthew Breese, Analyst at Stephens Inc.]

Jim, maybe just thinking through I know securities aren't your first option.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Right.

[Matthew Breese, Analyst at Stephens Inc.]

If loan growth is, let's just say loan growth is on the lower end of mid-single digits and capital is building, do we continue to see some securities purchases? Where would you like to see that as a % of assets?

[Jim Reske, CFO at First Commonwealth Financial Corporation]

It's a great question. Depends on the funding side. We really don't believe in balance sheet leverage, like let's go out and borrow a lot of money overnight and buy securities with that to leverage the balance sheet. We'd just rather not do that. We'd rather have a more concentrated balance sheet with less leverage where we really make our money by taking deposits and making loans. If we had great deposit growth and excess cash and lower, slower loan growth like we did in the second quarter, then yeah, securities are a good option, especially when we can get rates where they are now in the low fives. It's not our go-to option, and we really don't believe in borrowing excess funds just to purchase securities and get that kind of balance sheet leverage. It dilutes NIM, it dilutes ROE.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

It gets you a little EPS, in the long run, it's not a winning strategy for a bank like ours. Was there another part of your question? I'm sorry.

[Matthew Breese, Analyst at Stephens Inc.]

Everything we saw this quarter was really kind of like a pre-funding of stuff that's maturing.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Yeah. That's right. We saw with the way we're pricing CDs; these funds started to have these outflows towards the end of the quarter, we got to react to that. If everything goes right, we have the mid-single-digit loan growth, we have the mid-single-digit deposit growth, loan deposit will grow. As capital grows, we retire some shares, the capital ratio is more in line with norms, the capital ratios don't grow into the sky. We can earn a respectable return on that capital. That's the balance we're shooting for.

[Matthew Breese, Analyst at Stephens Inc.]

Okay. Within expenses, one area I noticed is just that your FDIC insurance expense has been like clockwork between $1.4 million and $1.7 million per quarter. It dipped to $1.1 million, I'm curious just kind of what happened there, if anything within its kind of one time or non-recurring in any way.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

No, that's more of a new run rate. That's based on our new assessments. We're very happy about that. Can't say a whole lot more about it, but it's very, very positive.

[Matthew Breese, Analyst at Stephens Inc.]

Okay. I don't know if you provided, but did you have the spot cost of deposits for the month of June or at the end of June, just to give us some idea of where this thing might be heading?

[Jim Reske, CFO at First Commonwealth Financial Corporation]

I did not provide that, but I don't mind providing that. I can get it for you in a minute. It'll take me a second. You're looking at the total cost of-

[Matthew Breese, Analyst at Stephens Inc.]

Yeah, I'll give you one more question while you pull it up.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Yeah. Ask somebody else. Go ahead.

[Matthew Breese, Analyst at Stephens Inc.]

Obviously, worst left rates unchanged today, but it feels like the bias is towards hikes. If we do get a hike or two this year, kind of what's the reaction to the NIM? I think, Jim, you had mentioned 408 by the end of the year, but with the hike, we got the 403. That seemed a little backwards to me, and I was hoping you could flesh it out.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Oh. Thank you so much for letting me clarify. No, with the hike, it was 413. The adjustment I'm making is that I know that those forecasts we did do not take into account the latest thinking on deposit prices. That's why I backed off to our NIM guide to the low fours. The relationship is about the same. If we get a hike, we get about a five-basis point lift for a 25-basis point hike, a five-basis point lift in the NIM. It's been that way for a while, so we're still asset sensitive, and it's a benefit to us.

[Matthew Breese, Analyst at Stephens Inc.]

That's all I have. If you happen to have the spot cost, I'll take it. If not, I'm all set. Thank you.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

Yeah. Okay. It might take me a second or two. Sorry. Oh, 1.71. 1.71 in June.

[Matthew Breese, Analyst at Stephens Inc.]

Okay. All right. Well, it's a step in the right direction then. Thank you very much. I appreciate it.

[Jim Reske, CFO at First Commonwealth Financial Corporation]

You bet. Thank you.

[Operator]

There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Mike Price, President and Chief Executive Officer, for closing remarks.

[Mike Price, President and CEO at First Commonwealth Financial Corporation]

Yeah. Appreciate your interest in our company. Appreciate the questions. It's fun running a bank, a commercial and a consumer bank. We feel like we're very relevant to our customers here in Central and Western P.A. and Ohio. We also feel like we're a good bank. We do a lot of the right things for our client. First and foremost, we listen to them. Thank you and look forward to seeing a number of you over the course of the next quarter in the field.

[Operator]

This concludes today's call. Thank you for attending. You may now disconnect.

Participants

Executives

• Ryan Thomas, VP of Finance and Investor Relations
• Mike Price, President and CEO
• Jim Reske, CFO
• Brian Sohocki, Chief Credit Officer

Analysts

• Daniel Tamayo, Analyst at Raymond James
• Karl Shepard, Analyst at RBC Capital Markets
• Kelly Motta, Analyst at KBW
• Manuel Navas, Analyst at Piper Sandler
• Matthew Breese, Analyst at Stephens Inc.