First Commonwealth Financial Corporation (NYSE:FCF) is a regional bank that has demonstrated consistent financial performance and a commitment to prudent growth. With a strong presence in Pennsylvania and Ohio, the company has navigated the challenging economic environment with aplomb, delivering solid results for its shareholders.

Financials

In the latest quarter, First Commonwealth reported net income of $37.5 million, or $0.37 per diluted share. This represents a 24% increase compared to the same period last year, when the company earned $30.2 million, or $0.30 per diluted share. For the full year 2023, First Commonwealth reported net income of $157.1 million on revenue of $626.1 million, with operating cash flow of $162.8 million and free cash flow of $140.7 million.

The company's performance in the second quarter was driven by a 5 basis point expansion in its net interest margin to 3.57%, as the increase in loan yields outpaced the rise in funding costs. First Commonwealth's loan portfolio grew just under 1% during the quarter, with strength in equipment finance and SBA lending offsetting declines in consumer loans, mortgages, home equity, and indirect auto. Management noted that they have been cautious in certain areas, such as investment real estate, but are starting to see more opportunities in both commercial and commercial real estate lending.

Geographic Performance

From a geographic perspective, the company's loan growth in Ohio continues to outpace its Pennsylvania footprint, a trend that has been consistent over the past several years. First Commonwealth is confident in its ability to generate mid-single-digit loan growth by the fourth quarter of 2024 and into 2025, driven by its strong origination capabilities and a building pipeline in both commercial and commercial real estate.

Deposit Growth

On the deposit side, First Commonwealth has seen broad-based growth across its footprint, with particularly strong performance in its community Pennsylvania market, which is the company's largest low-cost deposit region. Management noted that they have seen an increasing number of competitors lower deposit rates in their market area, taking some pressure off of pricing. The company continues to offer competitive rates on time deposits to bring down its loan-to-deposit ratio and create liquidity to fund expected loan growth, but is doing so at shortened terms to allow for repricing as rates fall.

Noninterest Income and Expenses

Noninterest income grew $1.2 million, or 5%, to $25.2 million in the second quarter, driven by higher wealth management fees and interchange income. The increase in wealth management fees was attributed to strong fixed annuity sales, as customers sought out instruments to protect their investments from falling rates. The company did note, however, that it expects a roughly $3.5 million quarterly downdraft in interchange income due to the Durbin impact starting in the next quarter.

Expenses continue to be well-controlled, with the core efficiency ratio improving to 53.6% in the second quarter. First Commonwealth's headcount remains down from year-end, even as the company staffs appropriately to support crossing the $10 billion asset threshold. Provision expense was elevated in the quarter as the company set aside further specific reserves for nonperforming loans, which increased $14.7 million, with approximately 75% of the increase related to the former Centric Bank portfolio.

Outlook

Looking ahead, First Commonwealth provided an optimistic outlook, expressing confidence in its ability to generate mid-single-digit loan growth by the fourth quarter of 2024 and into 2025. The company also expects its net interest margin to remain stable or even see slight improvement from current levels for the remainder of 2024, with a bias towards the higher end of its guidance range, even with two to three rate cuts.

Capital Management

From a capital management perspective, First Commonwealth's tangible book value per share increased by $0.30, or 13% annualized, to $9.56 during the quarter. The company repurchased just under 23,000 shares at prices below $12.50 and has $17.1 million of authorization remaining in its current buyback program. Given the recent run-up in the stock price, management noted that the earn-back on buybacks has become longer than they would like, but they may still repurchase shares to avoid becoming underleveraged, particularly if balance sheet growth remains modest.

Conclusion

Overall, First Commonwealth's second quarter results demonstrate the company's ability to navigate the current economic environment and position itself for continued growth. With a strong deposit franchise, disciplined expense management, and a focus on prudent loan growth, the company appears well-positioned to deliver value for its shareholders in the years to come.