FIRST COMMONWEALTH FINANCIAL CORP /PA/ Q4 FY2024 earnings call

• Finished Q4 with consensus earnings per share of $0.35, preserving strong profitability.
• Stabilized margin, grew deposits, managed expenses, and selectively pursued high-yielding loans despite deposit pricing pressure, higher credit costs, and Durbin impact.
• Ended 2024 in better capital and liquidity position, made key hires for C&I growth, integrated last acquisition, and announced CenterBank acquisition in Cincinnati.
• C&I equipment finance was a bright spot, growing $61M in Q4. Loan-to-deposit ratio improved to 92.5%.
• Overcame $6.7M Durbin hit to fee income with mortgage, SBA, wealth management, and other service charges scaling up.
• Credit costs moderated in Q4, NPLs declined, and reserves-to-loans remained above peer levels.
• Customer experience metrics improved with historic highs in Net Promoter Score and branch satisfaction.

In the fourth quarter, First Commonwealth had a pre-tax pre-provision ROA of 1.77% and ROE of 1.23%, with a NIM of 3.54% and core efficiency ratio of 56.1%. Average deposits grew 8.7% in the quarter, with average deposits for the year up $451.1 million or 5%, driving the loan-to-deposit ratio down to 92.5%. C&I equipment finance portfolio grew $61 million in the fourth quarter. Credit costs were elevated due to Centric acquired loans but moderated in Q4, with NPLs declining from 0.83% to 0.68% and reserves-to-loans remaining above peer levels.

• Strive for mid-single-digit loan growth in 2025.
• Expect NIM to expand in 2025, with internal forecasting based on two rate cuts leading to NIM expansion by end of 2025.
• Fee income expected to be $22M-$23M per quarter in Q1 2025, gradually growing, with CenterBank acquisition contributing a few hundred thousand dollars per quarter in H2 2025.
• CenterBank acquisition to create modest additional operating leverage, contributing ~$0.01 per share to EPS starting Q3 2025.

• Deposit pricing pressure.
• Higher credit costs, particularly from Centric acquired loans.
• Impact of Durbin on debit card-related interchange income.
• Uncertainties in interest rate environment affecting loan demand and NIM.

Q: Daniel Tamayo from Raymond James asked about fees, mortgage banking, loan sale gains, card income, and loan growth drivers.

A: Jim Reske and Mike Price discussed fee components, Durbin impact, and loan growth drivers including CRE, C&I, consumer lending, and equipment finance.

Q: Karl Shepard from RBC Capital Markets asked about NIM expansion and CenterBank acquisition.

A: Jim Reske explained NIM projection based on loan side and positive replacement yields, Mike Price discussed CenterBank acquisition details.

Q: Kelly Motta from KBW asked about acquisition pace and credit.

A: Mike Price talked about acquisition pace and Brian Sohocki discussed credit metrics and asset migration trends.

Q: Matthew Breese from Stephens, Inc. asked about balance sheet, equipment finance concentration, and CenterBank deal.

A: Jim Reske discussed balance sheet and securities portfolio, Mike Price and Jim Reske talked about equipment finance concentration and CenterBank deal details.

Q: Manuel Navas from D.A. Davidson asked about rate cuts impact on NIM and deposit costs.

A: Jim Reske and Mike Price discussed rate cut scenarios, deposit cost movements, and long-term NIM outlook.