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    FCF
    Earnings call· Jun 2026(Q2 FY26)

    FIRST COMMONWEALTH FINANCIAL CORP /PA/ Q2 FY26 earnings call FCF

    Jul 29, 2026 Source

    Executive summary

    First Commonwealth Financial Corporation Q2 FY26 — Strong Core Earnings and NIM Expansion

    First Commonwealth Financial reported a strong second quarter, marked by significant core EPS growth and net interest margin expansion driven by lower funding costs and higher loan yields. The bank achieved balanced loan and deposit growth, though period-end deposits saw some decline due to competitive pricing. While credit quality showed modest improvement, elevated loan payoffs and increased classified assets remain areas of focus, with management anticipating a return to mid-single-digit loan growth as payoffs normalize.

    Highlights

    5

    • Core EPS of $0.44, up $0.07 over the first quarter.

    • Net interest margin expanded 9 basis points to 4.01%, driven by lower funding costs and higher loan yields.

    • Core ROAA of 1.46% and core pretax pre-provision ROAA of 2.14%.

    • Loan growth of 1.97% annualized was matched by average deposit growth of 2.03%.

    • Fee income grew year-over-year, with nice traction in mortgage and wealth management businesses.

    Concerns

    4

    • Period-end deposits were down at an annualized rate of 5.77%, with about 2/3 of the decline coming from time deposits due to less aggressive pricing.

    • Record commercial loan payoffs of roughly $740 million in Q2, following a record first quarter of $630 million.

    • Charge-offs remain elevated, though credit quality improved modestly with lower nonperforming loan balances.

    • Classified loans increased modestly due to migration between special mention and substandard categories for about $10 million across two credits.

    Guidance & targets

    6
    CategoryTargetConfidence
    Net Loan Growth
    Mid-single-digit growth
    high materiality
    Medium
    Net Interest Margin (NIM)
    Low 4% range
    high materiality
    Medium
    Fee Income
    $24 million to $25 million per quarter
    medium materiality
    High
    Noninterest Expense
    $74 million to $76 million per quarter
    medium materiality
    High
    NIM Scenario (no rate increases)
    4.08%
    low materiality
    Low
    NIM Scenario (one rate hike)
    4.13%
    low materiality
    Low

    Operational metrics

    36
    Core ROAA
    1.46%
    Q2 FY26
    Core Pretax Pre-provision ROAA
    2.14%
    Q2 FY26
    Core Efficiency Ratio
    52.24%
    Q2 FY26
    Loan Growth
    1.97%annualized
    Q2 FY26

    Loan growth was led by equipment finance, commercial construction, branch-based home equity loan lending, and indirect lending, offsetting contraction in commercial real estate and C&I lending.

    Average Deposit Growth
    2.03%annualized
    Q2 FY26
    Commercial Loan Payoffs
    $740Mrecord quarter
    Q2 FY26

    Followed a record first quarter of commercial loan payoffs.

    Commercial Loan Originations
    $693M
    Q2 FY26
    Fee Income Improvement
    $2.3MQoQ
    Q2 FY26

    Benefited from a sub debt redemption gain and BOLI death claim.

    Gain from Subordinated Debt Redemption
    $806K
    Q2 FY26

    From the redemption of a sub debt instrument inherited from a prior acquisition.

    BOLI Death Claim
    $450K
    Q2 FY26

    Contributed to fee income improvement.

    Interchange and Deposit Service Charges Increase
    $0.5MQoQ
    Q2 FY26

    Contributed to fee income improvement.

    Noninterest Expense Improvement
    $1.3MQoQ
    Q2 FY26

    Benefited from discrete expense items in Q1 and a vendor rebate.

    Vendor Rebate
    $450K
    Q2 FY26

    Offset salary and hospitalization expense increases.

    Snow Removal Costs
    $0.5M
    Q1 FY26

    Discrete expense item in Q1 that impacted QoQ comparison for noninterest expense.

    FHLB Prepayment Penalty
    $0.5M
    Q1 FY26

    Discrete expense item in Q1 that impacted QoQ comparison for noninterest expense.

    Stock Repurchased
    $12M
    last quarter
    Remaining Repurchase Authorization
    $13M
    end of Q2 FY26
    New Repurchase Authorization
    $75M
    approved

    Approved by the Board, management intends to continue share repurchase activity in Q3.

    Tangible Book Value per Share
    $11.58up from $11.34 last quarter and $10.63 a year ago
    Q2 FY26
    Tangible Common Equity Ratio
    9.9%up from 9.7%
    Q2 FY26

    Improved from last quarter, management notes it is drifting upward.

    Cost of Deposits
    1.74%down 5 bps
    Q2 FY26

    Contributed to NIM improvement.

    Fixed Rate Loans Repricing Upward
    61 bps
    Q2 FY26

    Contributed to asset side improvement of NIM.

    Loan Portfolio Yield
    6.07%up 4 bps from 6.03%
    Q2 FY26

    Contributed to asset side improvement of NIM.

    Macro Swaps Expiration
    $150M
    May 1

    Contributed to the increase in loan yields.

    Individual Credit Charge-off
    $3.4M
    Q2 FY26

    Part of the charge-offs in Q2, had a prior period reserve of $3.25M.

    Prior Period Reserve for Individual Credit
    $3.25M
    Q2 FY26

    For an individual credit that had a $3.4M charge-off in Q2.

    Watch Balances Decrease
    $30M
    Q2 FY26

    An indicator of improving portfolio direction.

    CD Book Size
    $1.7B
    Q2 FY26

    Fairly decent sized time deposit book that needs to be priced competitively.

    Competitor CD Rates
    4.5%
    Q2 FY26

    Competitors are raising CD rates to this level, indicating heating deposit competition.

    New Loan Yields
    mid-6s
    Q2 FY26

    New loans are coming on at these yields, providing positive replacement yield.

    Marginal Deposit Cost (blended)
    3%
    Q2 FY26

    Blended average of all deposit growth categories, but expected to drift upwards due to competition.

    Securities Purchase Yield
    low 5s
    Q2 FY26

    Able to purchase securities at these rates, providing strong placement yield.

    NIM Lift per 25 bps Rate Hike
    5 bps
    Q2 FY26

    The bank is asset sensitive, benefiting from rate hikes.

    FDIC Insurance Expense
    $1.1M
    Q2 FY26

    New run rate based on new assessments.

    Spot Cost of Deposits
    1.71%
    June 2026

    Spot cost of deposits at the end of June.

    Fee Income Recovery/Threshold
    $13.5M
    Q2 FY26

    Recouped what was lost, crossing $10 billion, in the context of cross-selling wealth management and insurance.

    Industry KPIs

    13
    MetricValueDetails
    Loans1.97%%
    Deposits2.03%%
    Rotce ROEOver 15%%
    Cet1 ratio12.6%%
    Capital returns$12MUSD
    Fee income lines$24M-$25MUSD
    Allowance reservesStable
    Net interest incomePositive
    Net interest margin4.01%%
    Net charge offs nplsElevated
    Total operating expenses$74M-$76MUSD
    Provision for credit lossesPositive
    Efficiency ratio operating leverage52.24%%

    Deals & partnerships

    1
    not statedSale of loan portfolio$200M

    Sold a $200 million portfolio last quarter, contributing to a $100 million downdraft in overall balances.

    Risks & headwinds

    4
    Elevated Charge-offsNear-term

    Charge-offs remain elevated, individual credit had $3.4M charge-off.

    Mitigation: Working through identified problem credits; expected to revert to historical norms of 30-32 bps over time.

    Increased Classified LoansQ2 FY26

    Modest increase in classified loans due to $10M migration across two credits within previously identified criticized relationships.

    Mitigation: Migration occurred within existing criticized relationships, not new problem credits; watch balances decreased by $30M.

    Intensifying Deposit CompetitionOngoing, particularly H2 FY26

    Competitors offering CD rates in the low 4s, leading to period-end deposit outflows of 5.77% annualized.

    Mitigation: Adjusting pricing to maintain and grow the CD book; comfortable with loan-to-deposit ratio in low 90s.

    Record Commercial Loan PayoffsQ1 and Q2 FY26

    $740M in Q2 FY26, following $630M in Q1 FY26.

    Mitigation: Expect payoffs to subside; strong production in construction, business banking, and corporate banking expected to drive mid-single-digit loan growth in H2 FY26.

    What to watch in Q3 FY26

    4

    Net loan growth

    H2 FY26
    Current1.97% annualized (Q2 FY26)
    TargetMid-single-digit growth

    Why it matters

    Loan growth is a key driver of revenue and profitability for the bank.

    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

    Q&A highlights

    5

    What drove the increase in classified loans, and what is the near-term expectation for charge-offs?

    The increase in classified loans was due to migration within previously identified criticized relationships ($10M across 2 credits) rather than new problems, with overall criticized assets stable. Charge-offs remain elevated but are expected to revert to a historical norm of 30-32 bps over time, after working through existing reserves for individual credits.

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

    asked by Daniel Tamayo · answered by Brian Sohocki

    1 min read5 chapters

    Detailed Narrative

    01

    Credit Quality Dynamics

    While overall criticized assets remained stable at 3% of loans, the quarter saw migration between special mention and substandard categories for about $10 million across two credits, leading to a modest increase in classified assets. This migration occurred within existing criticized relationships, not new problem credits. Leading indicators like watch balances decreased by $30 million, and delinquency remained stable.

    02

    Loan Payoff Trends

    The bank experienced record commercial loan payoffs of approximately $740 million in Q2, following $630 million in Q1. Management expects these payoffs to subside, anticipating a return to mid-single-digit loan growth in the second half of the year, driven by strong production in construction, business banking, and corporate banking.

    03

    Deposit Strategy and Competition

    Average deposits grew 2.03% but period-end deposits declined 5.77% annualized, primarily in time deposits. This was a strategic choice to price less aggressively due to excess cash and limited loan growth. However, deposit competition, particularly for CDs, has intensified, with competitors offering rates in the low 4s, prompting the bank to adjust its pricing.

    04

    Technology and AI Adoption

    First Commonwealth continues to leverage technology and fintech partnerships, with AI being integrated into operations. An example cited is AI assisting call center employees by providing policy and procedure guidance, navigating multiple systems simultaneously to improve client solutions.

    05

    Talent and Regional Model

    The bank emphasizes talent acquisition and execution, particularly in business banking, where new professionals have been added. The shift to a regional model, while potentially more expensive, aims to create differentiation and leverage fee income opportunities through enhanced cross-selling of wealth management and insurance services.

    AI-generated summary of the company’s earnings call. Not investment advice.