Clarification on NIM guidance for 'low 4s' and potential for continued expansion into 2027, especially with rate hikes.

Jim Reske clarified that the 'low 4s' guidance for H2 2026 reflects increasing deposit competition, despite internal models showing higher NIMs (4.08% without hikes, 4.13% with one hike) before accounting for recent deposit pricing pressures. He is hesitant to provide 2027 guidance but confirmed asset sensitivity, with a 25 bps hike typically adding 5 bps to NIM. “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. But that latest run, I'm taken with a grain of salt for my guidance because that did include the latest and greatest information we have about deposit competition, which is really heating up in our market.”

What is a normalized range for payoffs, and what is the message behind the larger buyback authorization?

Payoffs are expected to subside from current record levels, which included several one-off larger sales. The larger $75 million buyback authorization reflects continuously improving capital ratios (TCE pushing 10%) and the desire to manage excess capital for better ROE, with management indicating a more aggressive repurchase pace going forward. “the capital ratio keeps drifting upward and upward... 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.”

Details on deposit competition in their markets and comfort level with the loan-to-deposit ratio.

Competition is heating up primarily in time deposits (CDs), with competitors offering rates in the low 4s. The bank initially pulled back on aggressive CD pricing due to excess cash, leading to outflows, but is now reacting to maintain its CD book. They are comfortable with the loan-to-deposit ratio in the low 90s, having worked to reduce it from 96-97% previously, and do not want to give away this hard-earned position. “The competition really is in the time deposits... We saw even just yesterday a couple of more competitors raising CD rates to rates that have 4 handles on them.”

FCF

First Commonwealth Financial (FCF) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Financials· Jul 29, 2026

Source: earnings call transcript

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

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

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

Category	Target	Timeline	Confidence
Net Loan Growth	Mid-single-digit growth high materiality	H2 FY26	Medium
Net Interest Margin (NIM)	Low 4% range high materiality	H2 FY26	Medium
Fee Income	$24 million to $25 million per quarter medium materiality	Remainder of FY26	High
Noninterest Expense	$74 million to $76 million per quarter medium materiality	Remainder of FY26	High
NIM Scenario (no rate increases)	4.08% low materiality	Q4 · FY26	Low
NIM Scenario (one rate hike)	4.13% low materiality	Q4 · FY26	Low

Deals & partnerships

not stated Sale of loan portfolio $200M

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

Risks & headwinds

Elevated Charge-offs Near-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 Loans Q2 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 Competition Ongoing, 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 Payoffs Q1 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

Net loan growth

H2 FY26

Current 1.97% annualized (Q2 FY26)

Target Mid-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

Find out whether FCF delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 5 chapters

Detailed narrative

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.