First Commonwealth Financial Corporation

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.

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 will be Mike Price, President and CEO, Jim Reske, Chief Financial Officer, Brian Sohocki, Chief Credit Officer, and Mike McEwen, 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've 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 statement. 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.

Hey, 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 40 cents. Net interest income was down some $4.2 million for the quarter to $109.3 million as we sold $210 million of Eastern PA 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 in over the first quarter of 2025. In the first quarter, we had 18 successful CRE projects. They were refinanced or sold, representing a payoff of approximately $240 million in loan outstandings. The net interest margin, or NIM, 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 NIM 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. Period of four, we have been reticent to aggressively drop rates, But given the elevated loan payoffs and a markedly lower loan-to-deposit ratio, we were well-positioned to test lower deposit rates in the next several quarters. Non-interest expenses were up $1.2 million to $75.5 million 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 remain 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 stocks. Other notable 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 Reske, our CFO.

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 point contraction in the yield on earning assets, somewhat offset by a five basis point 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 NIM, of 3.92%, is in line with our previous guidance. While it is down from last quarter's 3.98%, the NIM in the fourth quarter benefited from about three basis points 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 1st, 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 three to five basis points higher each quarter than before, drifting upwards 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 FHLV 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 near end. When they paid off at par, the difference between par and a 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 per quarter this year. We repurchased approximately $22.7 million 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 two 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 $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.

Thank you. We'll now begin the question and answer session. If you've dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is star 1 to join the queue. And our first question comes from the line of Daniel Tamayo with Raymond James. Your line is open.

Thank you. Good afternoon to everybody. Maybe starting just on the increase in the charge-offs, I appreciate the comments on the loans that were paid down or sold in the second quarter early on. Maybe just a clarification on that. First of all, were there any charge-offs associated with those credits that were sold or paid off? And then, Jim, I was just wondering if you had any thoughts on provision or net charge-offs for the rest of the year. Thanks.

Brian Sahaki.

Yeah, Daniel, I can jump in. The charge-offs from the portfolio We recorded $2.8 million during the fourth quarter when we moved them to help for sale. And then there was approximately $400,000 that had paid off at par that were reversed and run through the income statement in the first quarter. As you look at the other charge-off activity, You know, my comment would be that we remained above our long term target, but we did improve sequentially. And, you know, the level continues to be driven by a limited number of isolated credits. You know, we're not seeing any indicators of, you know, systematic stress across the portfolio. You know, overall, the performance has been remaining consistent outside of those isolated numbers. And I think your last part of the question was just related to the activity in the press release post quarter end. There was two names that were in non-performing at the end of the first quarter. One, we ultimately exited via a loan sale and incurred just a charge off outside of our reserved amount of just under $150,000. Um, the second, uh, was an exit, a full payoff that far.

Okay. Very helpful. Um, and I appreciate that detail on the second quarter. Uh, so I think what you're saying is you're, you're, and correct me if I'm wrong, you're expecting, I guess you said they were a little bit above your long-term target of the first quarter. Um, so that should drift down towards that range kind of as the, as the year plays out. Is there like a, a ramp down, you think, still from here, or we're moving pretty quickly back into that range?

Yeah, we'll continue to work through the resolution. Specifically, as you saw in the release, the one item which was moved to NPL during the first quarter is a second quarter charge-off, so more of a slow ramp down to the historical level as we resolve those credits that move into NPL.

Okay, great. That's helpful. Thanks. And then, Jim, maybe, or Mike or anyone on the loan growth, just curious what pay down activity looked like in the first quarter, kind of how you're forecasting that to trend down for the rest of the year and how that offsets against origination activity.

Yeah, just in the... We compared the first quarter to the first quarter of last year, and we had $10 million more of production, well over $900 million, in the first quarter of 2026. Our pay half activity was heightened. It went from about $480 to about $630. It was up $150 million, and so we felt that, and we felt that on top of the loan sale. And last year we grew modestly. We grew about 90, 95 million in the first quarter. It was about four and a half, maybe 4.4%. So notwithstanding those payoffs, our activity was steady. It was good. It was key lock, key loan was a bright spot. I would say small business, business banking, and still trying to get the commercial real estate construction portfolio to overtake the payoffs and some of the originations there. So we just, We feel the year sets up pretty well, notwithstanding $150 million more payoffs from a year ago. And I would say that in the ensuing quarters since the first quarter of last year, the payoffs went up every single quarter. We feel with rates maybe cresting here, perhaps, that... and moving up, that that activity has slowed somewhat here in the last 30 days or so, or maybe it's coming at a natural end because we don't have that many big names left to pay off. So that's the calculus, and we do feel good about the level of activity and that we can hit the guidance that we've given historically of mid-single loan growth.

Thanks for all that, Colin. I appreciate it.

And our next question comes from the line of Charlie Driscoll with KBW. Your line is open.

Hi, guys. Thanks for the question. This is Charlie on for Kelly Mata. Just one clarifying question on the margin. I appreciate the comments on the three to five bips of expansion from here. But just drilling down on that exit margin, do you expect to kind of exit the year near 4% or, you know, a bit above that level if you could kind of help us with how you're thinking about some of the pieces here or what could cause you to

to exceed that that exit rate reach the high end or low end of that guy yeah thanks for the question and the opportunity to clarify um now we think the fourth quarter should be a little over four percent but i'm really glad you asked because there's variability the big variability especially if you look over the last few years has been deposit behavior i think we're in a really good spot now along the deposit ratio now 90.9 uh so down so we really have some room here to bring down deposits just because the balance sheet is so liquid. It gives us just a little more freedom to be a little more aggressive on deposit rates and bring that down. So that's the big variable factor in our NIM forecast. But all else being equal, we expect to end the year a little over 4%.

I would just add that in bringing down the cost, we will balance that with We hang promos and we have nice, we've gathered a lot of deposits, core deposits, as well as interest-bearing. And it's been a terrific way to gain new checking accounts. And Bativa has done a nice job. So it's more of a balance than you think. So that we'll pick our spots as we decrease rates, probably perhaps a little bit more on CDs. And by the way, we're going to test this and we're going to move the steering wheel, but we're just going to be cautious because Household growth, the granularity of our depository is tied to when we get a customer, we're going to have to lend to them. It's just a good thing when we get a new consumer customer. And our depository is about 50-50 consumer, which makes it very granular. And we sail through events like Silicon Valley three years ago. And you can see our string of, we grow deposits pretty steadily over the last three years or so.

Great. I appreciate the commentary there. I guess kind of on that deposit gathering activity, you saw, you know, a nice quarter here. But do you expect that to, you know, keep up with the mid-single-digit loan growth you guys are getting? Just kind of get the rights out of the balance sheet here, seeing if... Yeah, long-term, yes.

Maybe shorter-term, we're going to test some things and just... We'll test some things. We have a good team.

Great. Thank you. And then last one from me, just on expenses, wondering if this is a good core run rate to build off of in 2026. Maybe you could provide some color on what sort of investments you're making and where you're exercising more discipline in the expense front. Thank you.

Well, I think the guidance we gave, you know, we talked about MIE hovering the $74 to $76 million range. I wish I could actually give you a tighter range. I know it's a $2 million range, but it does just vary a little bit quarter to quarter. We're just committed to keeping expenses under control.

Mike, I don't feel like you want to… No, we've been good stewards of expenses over the years, and we like efficiency ratios that are less than 55 percent. We've been pretty good at operating leverage through the years, and as we scale the bank, we have to stay true to that culture. At the same time, we're getting stretched on expenses and talent. We have to find the right mix and really have lots of good discussion, just like other management teams.

Great. Thanks for answering my questions. I'll step back.

And our next question comes from the line of Carl Shepard with RBC. Your line is open.

Hey, good afternoon, guys. Hello. Can you guys hear me?

Yeah, yeah, please.

Okay, great. Jim, just one quick one on the NIM guidance. I think you said you moved from two cuts to one cut. Is that later in the year or is it earlier and might have a little bit of impact?

I think it's a little later in the year, like late summer. I can verify that. It's an interesting value, and I'm kind of glad you asked, because if there is one cut, if the rate and environment is down a little bit, it gives us an opportunity to take deposit costs down even further. Generally, we say we're not at sensitive balance sheet, but it's the opposite activity on the deposit side. If it's a falling rate environment, it gives us a little more opportunity on the deposit side than it in the down draft in the variable rate loan portfolio. So when we looked ahead out of one cut versus, I know this is another question you asked. I'm just kind of thinking about it as you asked that question. One cut versus zero cuts. The delta stuff isn't all that big. Oh, the one cut in our base case forecast is, as I said, late summer, not September, actually. So hope that helps a little bit. I believe you mentioned in my prepared remarks is that the base case last fall when we were doing the budget for us was based on a purchased vendor that most banks use, and that was four cuts for the year. It's quite dramatically different now.

Okay. That's helpful. And then I wanted to pick up a little bit on the credit discussion. I know the provision will kind of be an output of what's sitting there at 630, but... If I put all your comments together in the specific reserves for the credits that were resolved after quarter end, it seems like there's room for the provision maybe to drift back down a little bit. I think you're kind of signaling with no stress in the portfolio a stable reserve. Is that a fair way for us to think about this?

I think so, yes.

Okay. Great. Those are the two for me. Thank you. Thank you.

And our next question comes from the line of Manuel Navas with Piper Sandler. Your line is open.

Hey, good afternoon. Can you speak a little bit more on the buyback pace, and is it impacted at all with any potential shifts in loan growth? I mean, I know you reiterated the guide, but if loan growth comes in at different parts of the range, would you buy back more? Is that part of the calculus?

Great question, Manuel. It's not really driven. It's not leveraged by the loan growth. We have plenty of capital to capitalize the loan growth. In other words, I don't think that if we grew gangbusters, we'd be pushing the capital ratios into any kind of place where we'd be concerned. It's really more driven by just a dollar amount of capital generation. We're kind of operating under Fed guidance that says you're allowed to buy back return of shareholders between the dividend and the buyback up to the dollar amount of capital generation in any given quarter, but not beyond that. That's kind of what we've been operating on. There are peers that do go beyond that, but that requires a full-blown application for the Fed, and we just haven't done that. So that's what we're doing. So last quarter, there's a chart in the supplement that we published on the investor relations portion of our website, the PowerPoint, that shows we returned about 95%, close to 100%. I think we came within $1.71. Now, if it's not too much loan growth, it's a fair question because we always say the primary use of capital is organic loan growth and capitalizing as we go. So that's, I can see where you're coming from, but that's really driven by just the dollar amount of capital generation, like the cap.

Okay. Just shifting over to loan growth for a moment, any shift to the mix or just because the production is pretty solid, you're going to keep the same mix? And one specific, could you comment a little bit on the equipment finance growth? Are we approaching a cap, or does that still have a year or so left to run? That was kind of the nice positive area of growth for the quarter.

Yeah, the mix is probably a percent more commercial, probably $61.39 now commercial growth. consumer mix so that's changed and obviously to move it a percent or so even in two quarters takes a lot more production on one side than the other so we are becoming more commercial we actually talked about that this morning and because we love the consumer households and the deposits and the granularity of that and we just want to have good balance there and then so great question and on the equipment finance side I think there's room to run there for another year or so. And knock on wood, it's really met our credit projections. And that portfolio mature here, begin to mature here in the next year or so. And we'll see how those credit costs come through and how that matures. But we feel good about that business. The other thing the team has been very nimble and creative is... You know, we had a goal to kind of, you know, once we got that up and running, to really switch that to an in-market true leasing business. And they're already pivoting there in a meaningful way that will result in a good portion of that business being in-market leases to our commercial clients. And so it's just a talent team. And we're just delighted with how that has unfolded. Hopefully that's helpful, Manuel.

That's great. Thank you. I appreciate it. I'll step back into the queue.

As a reminder, it is star one if you would like to ask a question. And our next question comes from the line of Matthew Brees with Stevens. Your line is open.

Hey, good afternoon. Hey, Matt. A few questions. First one is, Towards the back of your presentation, it looks like you have $35 million in maturing office next quarter. You have $17 million in the third quarter and $13 million in the fourth quarter, given we're not totally out of the woods on office yet. Just curious, have you looked at the maturities and any sort of credit worries as we come upon those dates?

Yeah, we've looked at it going out about through the end of next year, actually. Brian, do you want to comment on that?

Yeah, I'll just jump in and You know, I guess, you know, we continue to actively manage the portfolio. We have seen exposures continue to trend lower. And, you know, my comment on the maturities is, you know, part of that is also, you know, managed purposefully through, you know, shortening maturities. and extending into a certain period in order to facilitate an exit or a refinance or sale of the property. One of our biggest successes in 2025 was just that, where we had a large reduction in the second half of the year through an asset sale as a result of that. So we evaluate maturity by maturity throughout the whole portfolio and focus over the next 24 months

and you know are actively uh pursuing you know exits that you know make sense for the portfolio is that helpful yes okay um jim it looks like the cash position is up a little bit you know maybe excess of 100 150 million it's kind of a near-term deployment for that well we um a couple things

The cash position is up in part because of the execution of the sale of the loans that were in-house for sale. So we see that can actually pay down, and Mike mentioned this, but pay down to an FHLB borrowing with spots and securities and still have a loan book shrinking a little bit in the first quarter. We've got that excess cash position. So we can foresee the pattern of some of our deposits, some of our large deposits that are in the public funds category. A lot of those come out in the second quarter, so we'll make sure we have cash around for that. they don't guess that money and find ourselves having to borrow money because we have those outflows so knowing that those are coming we're holding some cash for that and holding the cash for excess phone growth but to the extent it doesn't uh materialize we can probably be buying more securities we're buying now and expand securities portfolio a little bit that's kind of actually one of the issues at the moment okay and then i i did want to touch on

you know, some of the categories outside of equipment finance. So, you know, traditional C&I X equipment has been down for three quarters. It looks like commercial real estate's been down for two quarters. And, you know, we talked about prepays and payoffs and things like that. But, you know, for the larger segment, C&I commercial real estate, when do you start to, when do you think we'll start to see some net growth there? Is that a 2Q event?

Yeah, it'll be definitely this year. We've added some business bankers. We're seeing, and that's really more on the small end, more granular end. You know, the payoffs are happening on a little larger credits. And so that's kind of a tough swap because you've got to do four loans for everyone that's paying off. I like that long-term that the team, we've added a lot of business bankers over the last two years. They seem very productive. We actually, in the CNI segment, on the smaller end, small business and business banking actually grew that in the first quarter, $30 or $40 million, and really haven't done that on that bottom $600, $700, $800 million of that space. So that's good news, and we feel good about that, and that's obviously granular and comes with more depository, but we still have had some payment headwinds, no doubt. But I do think we can grow it. We will grow it. Okay.

Last one is just, you know, between Ohio and Pennsylvania, there's just a ton of activity between chip manufacturing, AI, data centers, and power plant build-out stuff. I was hoping for your comments around all that, and then, you know, how much of it can you say is had or potentially could have an impact on the pipeline? or loan growth to date?

You know, it might already be having an impact. I mean, we have really probably our deepest pipeline. After Cincinnati had a great first quarter, our deepest pipeline is probably in our $4.5 billion community PA market, particularly on the small business up through the business banking segment. And I think that I was with a contractor for dinner on Friday, Monday night and who's doing a lot of power generation gas powered one in Homer City it's having a real impact and it's good to see and but I also think that I mean Ohio has really grown the last few years and helped really let out in growth so I expect that to continue that's everything together and but And community PA always generated a lot of deposits, and now it looks like they're setting up for a good year on HELOC, HELON, and small business and business banking. So I don't know. We like the business. It's fun, and we feel like we make a difference. But it looks good.

I'll leave it there. Thank you for all that. Thanks.

And our next question comes from the line of Daniel Cardenas with Breen Capital. Your line is open.

Good afternoon, guys. Good afternoon. Just a couple of questions. Have you noticed any change in customer sentiment just given the current economic environment right now?

It might be too early to tell. I did notice that our interchange income on debit card was off a couple hundred thousand dollars.

We had a holiday in the fourth quarter, too.

Yeah, but an activity in swipes even. That's probably the first quarter, too. Yeah, we've been, and I think we've shared this with you, Dan, and others. We've been watching our consumer books like A Hawk, our He Lock, He Loan, our mortgage and our indirect auto, and we're seeing some pretty solid performance. So it kind of belies gas that I just filled up was in Pennsylvania, it's high at $4.47 a gallon. So we're watching that closely.

Yeah, I confirm that, Mike. And that was one of the positives in the first quarter is consumer delinquency trends improved. and was somewhat of an offset, helped our overall total delinquency level for the period. But we're monitoring everything that's touching energy and potential inflation impacts as we go through the quarter.

And, Dan, I would add we have probably – it's not like we have 15,000 or 20,000 customers. We have – plus indirect audit, we have 300,000 customers at the bank. So we have a lot of clients, so it's a pretty good sample size. All right.

And then just jumping quickly back to credit, within your level of non-performers, is there any geographic concentration in one particular market, or perhaps some of these credits are housed in versus others?

No, nothing from a geographic standpoint. As you look through it, it's been isolated credit events that have driven the overall dollar amount of NPLs. You know, the one point I'd add is Mike made a comment in his opening statement. It's just important to distinguish between the guaranteed and unguaranteed exposure. within the SBA portfolio. Those are all very granular. But from a concentration standpoint, as you asked it, there are $28 million of guaranteed NPLs in that portfolio.

All right. And then just one quick modeling question on the tax rate. Is a 20% tax rate kind of a good run rate for you guys?

Yeah, it's very close. I think we are at 20.26. Okay. Yeah, 22.26 for the first quarter. Perfect.

I'll step back. Thank you, guys. Thanks.

Thanks, Dan.

And we have no additional questions at this time, so I will now turn the conference back over to Mr. Mike Price for closing remarks.

Thank you for our interest in our company. I did want to mention, lastly and importantly, after 37 years at our company, Norm Montgomery, our chief information officer, is retiring, and we will miss him. And we have hired Ryan Gourney to replace Norm and have a talented team at our company. And excited for Norm and his retirement, and welcome to Ryan Gourney.

And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.