First Commonwealth (NYSE:FCF) reported first-quarter financial results on Wednesday. The transcript from the company’s first-quarter earnings call has been provided below.
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Access the full call at https://events.q4inc.com/attendee/105905810
Summary
First Commonwealth reported a net income of $37.5 million, translating to $0.37 per share, below the consensus earnings estimate of $0.40.
Net interest income decreased by $4.2 million due to the sale of $210 million in Eastern Pennsylvania commercial loans and heightened loan payoffs.
The net interest margin fell to 3.92%, but positive replacement yields and expiring swaps suggest potential for future expansion.
Deposits grew by 6.3% annualized, with successful money market promotions leading to new checking accounts.
Non-interest expenses increased by $1.2 million due to higher salaries and incentives, as well as prepayment fees for debt repurchase.
The efficiency ratio increased to 55.4%, with a commitment to slow down expense growth.
Provision for loan losses rose by $3.7 million, influenced by specific reserves for larger credits, but overall credit quality remains stable.
The balance sheet strengthened with increased tangible book value and reduced borrowings, while the loan-to-deposit ratio decreased to 91%.
Key strategic initiatives include leveraging fintech and AI to improve customer experience and internal efficiency.
The company plans continued share repurchases and announced an 11th consecutive annual dividend increase.
Full Transcript
OPERATOR
Ladies and gentlemen, thank you for standing by. My name is Abby and I’ll be your conference operator today. At this time, I would like to welcome everyone to the First Commonwealth Financial Corporation first quarter 2026 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. And I would now like to turn the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. You may begin.
Ryan Thomas (Vice President of Finance and Investor Relations)
Thanks, Abby, and good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation’s first quarter financial results. Participating on today’s call, we will be Mike Price, President and CEO, Jim Reschke, Chief Financial Officer, Brian Sohocki, Chief Credit officer and Mike McKeown, chief lending officer. As a reminder, a copy of yesterday’s earnings release can be accessed by logging on to FCBanking.com and selecting the investor relations link at the top of the page. We have also included a slide presentation on our investor relations website with supplemental information that will be referenced during today’s call. Before we begin, I need to caution listeners that this call will contain forward looking statements. Please refer to our forward looking statements disclaimer on page three of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward looking statements. Today’s call will also include non GAAP financial measures. Non GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with gaap. A reconciliation of these measures can be found in the appendix of today’s slide presentation. With that, I will turn the call over to Mike.
Mike Price (President and CEO)
Thank you, Ryan. Good afternoon, everyone. Several headlines for the first quarter of 2026 follow net income of 37.5 million resulted in 37 cents of earnings per share as compared to our consensus earning estimate of $0.40. Net interest income was down some $4.2 million for the quarter to 109.3 million as we sold $210 million of Eastern Pennsylvania commercial loans. And loan balances fell another 74.2 million due to heightened payoffs. Our commercial loan repayments swelled to $630 million in the first quarter, up some $150 million over the first quarter of 2025. In the first quarter we had 18 successful Commercial Real Estate projects. They were refinanced or sold representing a payoff of approximately $240 million in loan outstandings. The net interest margin or Net Interest Margin fell as expected to 3.92%. Among other items, positive replacement yields on new fixed rate loans in the first quarter were 54 basis points higher and coupled with $150 million swaps rolling off in the second quarter, this should provide the impetus for further Net Interest Margin expansion. Deposits grew 6.3% end to end annualized in the first quarter and our money market promotions have resulted in new consumer checking accounts. Heretofore we have been reticent to aggressively drop rates, but given the elevated loan payoffs and a markedly lower loan to deposit ratio, we are well positioned to test lower deposit rates in the next several quarters. Non interest expense expenses were up $1.2 million to 75.5 million DOL in the quarter as salaries and incentives increased alongside $500,000 of prepayment fees for the repurchase of long term debt. Our efficiency ratio climbed to 55.4% and we intend to slow down our expense growth rate. The provision for loan losses increased $3.7 million to $10.7 million on a linked quarter basis as we had $9.6 million in specific reserves for three larger credits, one of which was from Eastern Pennsylvania. Our non performing loans or NPLs to loans remained stubbornly high at 0.98% in the first quarter. Specifically, three previously discussed relationships totaling $20.5 million moved to non performing status during the quarter with $9.6 million of associated specific reserves. These downgrades offset otherwise positive asset resolution during the quarter. And please recall that of our 92.3 million in NPLs, 28.1 million or 30.4% is guaranteed by the SBA. The balance sheet and liquidity continued to strengthen in the first quarter as we paid off virtually all borrowings, lowered our loan to deposit ratio to 91% and grew tangible book value per share by 4.3% while at the same time repurchasing our stock. Other notable fourth first quarter items include our center bank acquisition has exceeded financial expectations and helped lead Cincinnati, the company leading loan and deposit growth in the second quarter. Residential Mortgage had a strong first quarter with both loan volumes and gain on sale income. The small business and business banking segment volumes were brisk as we have added new bankers and enhanced credit processes. Also, our retail bank had the highest net promoter and customer satisfaction scores since we began tracking. As we think about the ensuing quarters and future, it will be important that we focus on the basics, namely Live Our Mission Grow the Bank, Get Better. As we grow the bank, we must do so steadily and ensure our credit costs converge and surpass peers. Getting better will necessitate new approaches and technologies to both make it easier for customers to do business with First Commonwealth while simplifying internal processes. Given our adoption of fintech over the years and our current AI usage, we have important tools to continue to evolve our company. Simultaneously, we must become more efficient as we scale the bank. Our first strategic initiative, Live our Mission to improve the financial lives of our neighbors and businesses, remains the cornerstone of our brand and is what sets us apart as a community bank. With that, I’ll turn it over to Jim Resky, our cfo.
Jim Reschke
Thanks Mike. Mike’s already provided an overview of financial results, so I’ll drill down a bit on spread income and the margin. Spread. income was down from last quarter by $4.2 million, but approximately $2.6 million of this decline can be attributed to having fewer days in a quarter. The remainder stems from the lower levels of earning assets and the impact of last quarter’s Fed rate cuts on the variable rate loan portfolio. The Fed cuts resulted in a nine basis points contraction in the yield on earning assets, somewhat offset by a 5 basis points decrease in the cost of funds. The decline in earning assets is largely the result of the disposition of $210 million in loans that were moved to held for sale at the end of the fourth quarter. This quarter’s net interest margin, or Net Interest Margin of 3.92% is in line with our previous guidance, while it is down from last quarter’s 3.98%. The Net Interest Margin in the fourth quarter benefited from about 3 basis pointss from several unique items that we talked about last quarter, including the recognition of accrued interest from the payoff of several loans that had previously been placed on non accrual status. Looking ahead, the NIM should benefit from fewer than expected rate cuts that keep the variable rate loans from repricing downward while continuing to allow the fixed rate loans and securities to reprice upward. And the expiration of $150 million of macro swaps on May 1 this Friday is even more valuable in a higher rate environment as it will allow those loans to float to higher rates than expected. Based on our new one cut base case, we are revising our previous NIM guidance upwards slightly, about 3 to 5 basis pointss higher each quarter than before, drifting upward to the low 4% range by the fourth quarter of this year. First quarter non interest expense or NIE increased by $1.2 million from last quarter, but first quarter NIE included about $1.3 million in expense for finalizing incentive payments related to prior year volumes and performance. Similar to the first quarter last year, along with the $500,000 FHRV prepayment penalty that Mike mentioned, we expect NIE per quarter to hover in the $74 to $76 million range this year. Fee income is little change from last quarter first quarter fee income included approximately $435,000 from the payoff of several loans that had been included in the held for sale portfolio at year end when they paid off at par. The difference between PAR and the mark was recognized as fee income, Wealth, Mortgage and SBA are all up significantly from the same quarter a year ago. Fee income should range from 24 to 25 million dollars per quarter this year. We repurchased approximately 22.7 million dollars in stock last quarter at a weighted average price of $17.67. We have $25 million remaining in repurchase authorization, not the $18.4 million figure that was in the earnings release. We announced a 2 cent increase in the dividend yesterday, marking the 11th straight year of dividend increases. Combined with the dividend, we returned nearly 100% of internal capital generation to our shareholders last quarter, and yet tangible book value per share grew from $11.22 to to $11.34. We intend to continue share repurchase activity. In the second quarter. Our CET1 ratio improved from 12.1 to 12.5%. Our TCE ratio was unchanged to 9.7% and with that we’ll take any questions you may have.
OPERATOR
Thank you. We’ll now begin the question and answer session. If you dialed in and would like to ask a question, please press Star one on your telephone keypad to raise …
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