FIRST COMMONWEALTH FINANCIAL CORP /PA/ Q1 FY2025 earnings call

• Core earnings per share were $0.32, meeting consensus estimates.
• Loans grew 4.4% annualized, with commercial loans contributing $63 million (64%) to the quarterly increase.
• Net interest margin rose to 3.62% (up 8 basis points), with deposit costs at 1.99%.
• Fee income was $22.5 million, within guidance. SBA gain on sale income was down, offset by insurance and wealth income.
• Expenses increased $2.1 million to $71.1 million, driven by salaries, incentive compensation, and snow removal costs.
• Dividend increased by $0.01 per share, yield ~3.5%, payout ratio ~40%.
• CenterBank to close end of April, expected to boost efficiency and margin.
• Tariffs create uncertainty but clients generally less phased, some sectors support tariffs, others concerned but taking supply chain steps.

First Commonwealth met consensus estimates with $0.32 of core earnings per share in Q1 2025. Loans grew at an annualized rate of 4.4% ($99 million total), with commercial loans accounting for $63 million (64% of quarterly increase). Net interest margin was 3.62%, up 8 basis points, with deposit costs at 1.99%. Fee income was $22.5 million, within the guidance range of $22 million to $23 million. Expenses increased to $71.1 million.

• NIM expected to expand, with 8 basis points expansion in Q1, baseline forecast contemplates 3 Fed rate cuts (up from 2), NIM to reach high 370s by end of 2025; no cuts would see NIM in high 380s.
• Loan growth guidance for mid-single-digit remains unchanged.
• Fee income expected to be better in Q2 ($23M-$24M), $23M-$24M in Q3, and down ~$1M in Q4 due to seasonality.
• Non-interest expense, including CenterBank acquisition, expected $71M-$73M for rest of year.
• Buyback program has $6.7M remaining capacity, but no activity yet pending CenterBank closing.

• Tariffs leading to trade war, supply chain disruptions, renewed inflation, and economic slowdown. Initial signs of strain seen in GDP figures. Uncertainty could create loan growth headwinds, but no specific credit impacts identified yet.

Q: On loan growth guidance, specifically Equipment Finance portfolio momentum and reaction to slowdown?

A: Mike Price and Mike McCuen noted healthy application volume in Equipment Finance, additional talent, and some foreign-owned teams pulling back. Credit still good, but tariff anticipation may have boosted early volume.

Q: On commercial books, borrower sentiment and loan growth near term vs back half?

A: Mike Price and Mike McCuen said commercial real estate more active, pipeline good, C&I book showing success with new talent, pull-through on equipment, and construction book building.

Q: On deposit costs and NIM guidance, including CenterBank deal?

A: James Reske said NIM guidance includes CenterBank deal, deposit cost assumption is conservative, and CenterBank acquisition's impact on NIM is minimal (1-2 basis points).

Q: On buybacks, appetite after CenterBank closing?

A: James Reske said stock prices were watched, but buyback activity pending blackout period and stock price consideration.

Q: On expenses, FTEs and talent addition?

A: Mike Price and James Reske said FTEs are an investment in commercial side, talent added to equipment finance and commercial banking teams, and turnover controlled in branch network.

Q: On SBA gain on sale, drivers and outlook?

A: Jane Grebenc said SBA gain on sale will be frothier as year progresses due to pipeline and mix of deals, including construction projects, with margin around expectations.

Q: On provisioning and credit trends?

A: Mike Price and Brian Sohocki said reserves are ~132, charge-offs and provisioning matched last year, reserve outlook stable, and legacy portfolio issues dissipated.