First Commonwealth Financial Q2 Earnings Call Highlights

Key Points

• Second-quarter performance improved: Core EPS rose to $0.44 from $0.37, while net interest margin expanded 9 basis points to 4.01%, supported by lower funding costs and higher loan yields.
• Loan growth remained constrained: Annualized loan growth was 1.97%, as approximately $740 million in commercial loan payoffs offset stronger origination activity. Management expects payoffs to moderate and growth to move toward its mid-single-digit target.
• Credit and capital remained solid but mixed: Nonperforming and watch-list loans declined, though criticized assets stayed elevated and charge-offs remained above historical levels. Tangible book value and capital ratios improved, while the company authorized an additional $75 million in share repurchases.

First Commonwealth Financial NYSE: FCF reported higher second-quarter core earnings and an expanded net interest margin, while management said record commercial loan payoffs continued to restrain loan growth despite improving production pipelines.

President and Chief Executive Officer Mike Price said the company generated core earnings per share of $0.44 in the second quarter, up $0.07 from the first quarter. Core return on assets was 1.46%, while core pretax, pre-provision return on assets was 2.14%. The company also reported a core efficiency ratio of 52.24%.

“All key income statement categories moved positively quarter-over-quarter,” Price said, citing net interest income, provision expense, non-interest income and non-interest expense.

Margin Expansion Driven by Funding Costs and Loan Yields

Net interest margin increased 9 basis points from the prior quarter to 4.01%. Chief Financial Officer Jim Reske said roughly 6 basis points of the increase came from lower funding costs, while the remaining 3 basis points reflected higher loan yields and the deployment of excess cash into securities.

The cost of deposits declined 5 basis points to 1.74%, though Reske said deposit pricing competition became more intense late in the quarter, particularly for certificates of deposit. Average deposits grew at a 2.03% annualized rate, but period-end deposits declined at a 5.77% annualized rate, with time deposits accounting for about two-thirds of the decline.

Management said the company had priced time-deposit promotions less aggressively because of excess cash and limited loan growth. That approach contributed to deposit outflows toward the end of the quarter as competitors increased CD rates.

“The competition really is not so far anyway in the money market product,” Reske said. “The CD competition is heating up, and it’s across the board.”

Loan portfolio yield rose 4 basis points to 6.07%. Fixed-rate loans repriced upward by 61 basis points, and the expiration of $150 million in macro swaps on May 1 contributed to higher loan yields. Management said new loans were being originated in the mid-6% range, while newly purchased securities were yielding in the low-5% range.

For the second half of 2026, Reske said the company expects net interest margin to remain in the low 4% range. Internal projections had pointed to further margin expansion, but management adjusted its outlook to account for heightened deposit competition. Reske said a 25-basis-point rate increase would historically provide about a 5-basis-point lift to margin.

Loan Production Offsets Record Payoffs

Second-quarter loan growth was 1.97% annualized, broadly matching average deposit growth. Growth was led by equipment finance, commercial construction, branch-based home-equity lending and indirect lending, offsetting declines in commercial real estate and commercial and industrial lending.

However, Price said the quarter included about $740 million of commercial loan payoffs, following approximately $630 million of payoffs in the first quarter. Commercial loan originations increased to about $693 million in the second quarter.

Management expects the pace of payoffs to subside, citing several larger transactions that it characterized as one-time events, including outright asset sales and construction loans moving to permanent financing. Price said the company expects loan growth to return closer to its mid-single-digit guidance as production continues and payoffs normalize.

The company said it expects all five of its operating regions to generate growth in the second half after two regions, Community PA and Cincinnati, led both deposit and loan growth during the first half. Management also pointed to growing activity in business banking, equipment finance, indirect auto lending, home-equity products and commercial lending.

Price attributed the production outlook partly to investments in personnel and the company’s regional operating model. He said First Commonwealth has added banking professionals and expanded treasury-management capabilities, which support broader customer relationships beyond lending.

Credit Metrics Improve Modestly Despite Elevated Problem Assets

Chief Credit Officer Brian Sohocki said overall criticized loans remained stable at 3% of total loans. Classified assets increased modestly because roughly $10 million across two previously identified criticized relationships migrated from special mention to substandard status.

“The migration occurred within the previously identified criticized relationships, rather than a broad influx of new problem credits,” Sohocki said.

Nonperforming loan balances declined during the quarter, watch-list balances fell by about $30 million and delinquency remained stable, according to management. Still, Sohocki said classified assets and nonperforming loans remain above the company’s long-term objectives.

Charge-offs remained elevated as the company worked through identified problem credits. Sohocki said management expects some further activity related to reserves on certain commercial credits before charge-offs return toward the company’s historical range of roughly 30 to 32 basis points over time.

Fee Income, Expenses and Capital

Fee income rose $2.3 million from the first quarter. The increase included an $806,000 gain on the redemption of a $6.6 million subordinated debt instrument inherited in a prior acquisition and a $450,000 bank-owned life insurance death claim. Interchange income and deposit service charges increased by about $500,000.

Reske said the company’s guidance for quarterly fee income of $24 million to $25 million for the remainder of 2026 remains unchanged. Price also said mortgage and wealth-management businesses have gained traction, with mortgage fee income up nearly $1 million year over year.

Non-interest expense declined $1.3 million from the prior quarter. The comparison benefited from first-quarter snow-removal costs of about $500,000 and a roughly $500,000 Federal Home Loan Bank prepayment penalty. The company maintained its quarterly non-interest expense outlook of $74 million to $76 million for the rest of the year.

First Commonwealth repurchased approximately $12 million of stock during the quarter at a weighted average price of $18.66 per share. The board approved an additional $75 million share-repurchase authorization, and management said it intends to continue repurchases in the third quarter.

Tangible book value per share rose to $11.58 from $11.34 in the first quarter and $10.63 a year earlier. The company’s common equity Tier 1 ratio improved to 12.6% from 12.5%, while its tangible common equity ratio increased to 9.9% from 9.7%.

About First Commonwealth Financial (NYSE:FCF)

First Commonwealth Financial Corporation, 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.

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