First Commonwealth Financial Q2 Earnings Call Highlights

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.

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.

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.

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 approximat...