FIRST COMMONWEALTH FINANCIAL CORP /PA/ Q3 FY2024 earnings call

• Core Earnings Per Share were $0.31. Net interest margin fell 1 basis point to 3.56% due to rate declines. Other fee income growth offset interchange income decrease.
• Provision expense was $10.6 million, up $2.8 million from Q2, with specific reserves for legacy loans and Centric acquisition-related charge offs.
• Recognized as number two SBA lender in Western Pennsylvania for 2024. Customer satisfaction and net promoter scores hit 5-year peaks.
• Expenses were elevated due to one-time items. Non-interest income drifted down $683,000 but expects $22-24 million in Q4.
• Jim Reske discussed net interest margin headwinds (excess cash, deposit costs) and tailwinds (loan replacement yields, macro swap expirations), expecting NIM stability near term.

Loans were essentially flat, deposits grew, and the net interest margin fell 1 basis point to 3.56%. Growth in other fee income offset a $3 million decrease in interchange income. The provision expense was $10.6 million, up $2.8 million over the second quarter. The net interest margin contribution was 3.56%, with deposits contributing to growth and loans being flat. Other fee income growth helped offset the interchange income decrease.

• NIM expected to stay in mid-350s range through Q1 2025, then gradually fall to mid-340s by end of 2025.
• Non-interest income expected to be $22-24 million in Q4.
• Expect deposit growth to continue with a smooth glide path, aiming to lower loan-to-deposit ratio.

• Credit risks from Centric acquisition-related loans, including legacy loans with uncertain outlooks.
• Impact of market rate cuts on net interest margin, as 50% of loan portfolio is priced off one-month SOFR.
• Volatility in deposit costs and non-interest bearing account balances.
• Potential challenges in managing excess cash and its impact on NIM.

Q: Daniel Tamayo asked about the size of the securities portfolio and specific credit reserves.

A: James Reske and Brian Sohocki discussed that the securities portfolio is expected to expand, and specific reserves were taken on a construction loan and a term loan in the sponsor finance portfolio.

Q: Karl Shepard inquired about Centric credit convergence.

A: Thomas Michael Price noted criticized and watch loans from Centric are decreasing, showing improvement.

Q: Kelly Motta asked about deposit growth and margin outlook.

A: Thomas Michael Price and James Reske discussed large end-of-quarter deposit inflow, deposit beta expectations during rate cuts, and margin stability expectations.

Q: Matthew Breese asked about NPAs and repricing gaps.

A: Thomas Michael Price and James Reske commented on near-peak NPAs from Centric and other loans, and repricing gaps on fixed rate loans.

Q: Frank Schiraldi asked about deposit costs and margin scenarios.

A: James Reske discussed deposit cost trend expectations and margin guideposts for rate cuts.

Q: Manuel Navas asked about deposit appetite and participation portfolio.

A: James Reske and Jane Grebenc talked about deposit growth glide path and focus on transaction accounts, while Brian Sohocki discussed the participation portfolio.

Q: Daniel Cardenas asked about participation portfolio details.

A: Brian Sohocki provided details on the small size and manageable risk of the participation portfolio and the specific loan situation.