Business Overview and History
First Commonwealth Financial Corporation (FCF) has steadily grown its presence as a leading regional bank in the Northeastern and Midwestern United States. With a history dating back to 1934, the company has navigated various economic cycles and industry challenges to emerge as a well-diversified financial institution serving both consumer and commercial clients.
First Commonwealth Financial Corporation was founded in 1934 as the First National Bank of Indiana in Indiana, Pennsylvania. In 1971, the bank changed its name to National Bank of the Commonwealth. The company formed a holding company structure in 1983 and became First Commonwealth Financial Corporation.
Throughout its history, First Commonwealth has pursued a strategy of growth through acquisitions. In the 1980s and 1990s, the company acquired numerous smaller banks and thrifts in its market area, including Deposit Bank, Dale National Bank, First National Bank of Leechburg, Citizens National Bank of Windber, Peoples Bank and Trust Company, Central Bank, Peoples Bank of Western Pennsylvania, Unitas National Bank, and Reliable Savings Bank.
In 1995, First Commonwealth consolidated its banking operations by merging all of its banking subsidiaries, except Reliable Savings Bank, into Deposit Bank and renaming the resulting institution First Commonwealth Bank. Reliable Savings Bank was subsequently merged into First Commonwealth Bank in 1997.
The company significantly expanded its presence in the Pittsburgh market in the early 2000s through the acquisitions of Pittsburgh Savings Bank (operating as BankPittsburgh) in 2003, Great American Federal in 2004, and Laurel Savings Bank in 2006. These acquisitions added 27 branches in Allegheny and Butler Counties.
First Commonwealth's expansion into Ohio began in 2015 with the acquisition of First Community Bank, which added four branches in the Columbus area. The company continued its Ohio expansion in 2016 by acquiring 13 branches from FirstMerit Bank in Canton-Massillon and Ashtabula. In 2017, First Commonwealth further strengthened its presence in the Columbus market by acquiring DCB Financial Corp. and its subsidiary, The Delaware County Bank and Trust Company, adding nine full-service banking offices.
The company's growth in Ohio continued with the 2018 acquisition of Garfield Acquisition Corp. and its banking subsidiary, Foundation Bank, which added five full-service banking offices in the Cincinnati area. Prior to these acquisitions, First Commonwealth had already established a presence in Ohio by opening corporate loan production offices in Columbus, Canton, and Cleveland, as well as mortgage loan offices in Hudson, Canfield, and Lewis Center.
In 2019, First Commonwealth expanded its Pennsylvania markets into State College, Lock Haven, Williamsport, and Lewisburg through the acquisition of 14 branches from Santander Bank, N.A.
As of December 31, 2024, First Commonwealth operated 124 community banking offices throughout Pennsylvania and Ohio, as well as loan production offices in several key markets. The company provides a wide range of consumer and commercial banking services, including deposit accounts, lending, trust and wealth management, and insurance products through its various subsidiaries.
Financial Strength and Performance
First Commonwealth has demonstrated solid financial performance over the years, navigating the challenges posed by the COVID-19 pandemic and the evolving interest rate environment. For the full year 2024, the company reported net income of $142.6 million, or $1.39 per diluted share, on total revenue of $478.1 million. This represented a decrease from the previous year's net income of $157.1 million, or $1.54 per diluted share, on revenue of $482.3 million.
The company's net interest margin (NIM) for 2024 was 3.55%, down from 3.81% in 2023, primarily due to the impact of rising interest rates and competitive deposit pricing pressures. However, management is optimistic about the potential for NIM expansion in 2025, as the company expects to benefit from higher yielding loans and the maturity of certain interest rate swaps.
First Commonwealth's balance sheet remains strong, with total assets of $11.6 billion and a loan-to-deposit ratio of 92.5% as of December 31, 2024. The company's capital levels also exceed regulatory requirements, with a Common Equity Tier 1 ratio of 12.13% and a Total Risk-Based Capital ratio of 14.58% at the end of 2024.
One area of focus for the company has been fee income generation, which has helped offset the impact of the Durbin Amendment's interchange fee reductions. In 2024, non-interest income increased 3% year-over-year, driven by improvements in mortgage banking, SBA lending, and wealth management fees, which more than offset the $6.7 million decline in debit card-related interchange income.
Expansion and Growth Strategies
First Commonwealth has been actively pursuing strategic acquisitions and organic growth initiatives to expand its presence and capabilities. In December 2024, the company announced the acquisition of CenterGroup Financial, Inc. and its banking subsidiary, CenterBank, based in the Cincinnati, Ohio market. This $54.6 million all-stock transaction is expected to close in the first half of 2025 and will further strengthen First Commonwealth's foothold in the attractive Cincinnati metropolitan area.
Additionally, the company has been investing in its commercial and industrial (C&I) lending business, hiring talented bankers and leaders to drive growth in this segment. Management has set a goal of increasing the C&I portfolio to represent 25-30% of the total loan book over the next several years, up from its current level of around 19%. This strategic shift is aimed at diversifying the company's loan mix and improving its overall profitability.
In the consumer lending space, First Commonwealth has seen success in its indirect auto and equipment finance divisions, which have contributed to overall loan growth. The company is also focused on expanding its small business and middle market commercial banking capabilities, leveraging its regional market presence and the expertise of its newly hired talent.
Risks and Challenges
Like any financial institution, First Commonwealth faces a variety of risks and challenges that could impact its future performance. These include:
1. Interest Rate Risk: The company's net interest margin and profitability are susceptible to changes in interest rates, which can affect the yields on its interest-earning assets and the costs of its interest-bearing liabilities.
2. Credit Risk: As a lender, First Commonwealth is exposed to the risk of borrower defaults, which could lead to increased loan loss provisions and charge-offs, particularly in certain industries or geographic markets.
3. Regulatory Environment: The banking industry is heavily regulated, and changes in laws, regulations, or policies could impact the company's operations, compliance costs, and competitive landscape.
4. Competition: First Commonwealth faces intense competition from larger national banks, regional players, and emerging fintech firms, which could pressure its market share, pricing, and profitability.
5. Cybersecurity and Data Privacy: Like many financial institutions, First Commonwealth is vulnerable to cyberattacks and data breaches, which could result in reputational damage, regulatory fines, and operational disruptions.
Financials
First Commonwealth Financial Corporation's financial performance has remained solid despite challenging market conditions. The company's total revenue for 2024 was $478.1 million, with net income of $142.6 million. The company's net interest margin stood at 3.55% for the year, reflecting the impact of rising interest rates and competitive pressures in the deposit market.
For the most recent fiscal year (2024), First Commonwealth reported annual revenue of $478.1 million, annual net income of $142.6 million, annual operating cash flow of $129.5 million, and annual free cash flow of $113.9 million.
In the fourth quarter of 2024, the company generated revenue of $120.4 million and net income of $35.9 million. Year-over-year, revenue increased 0.3% while net income decreased 20.0% compared to Q4 2023.
The banking industry has experienced a compound annual growth rate (CAGR) of approximately 5% for revenue and 8% for net income over the past three years. First Commonwealth's performance has generally aligned with these industry trends, although the company has faced some headwinds in recent quarters.
Business Segments
First Commonwealth Financial Corporation operates through three primary business segments: commercial banking, retail banking, and wealth management and insurance.
Commercial Banking Segment: This segment offers a variety of services to small and mid-sized businesses, including commercial lending, commercial real estate lending, equipment financing, and commercial deposit products. As of December 31, 2024, commercial, financial, agricultural, and other loans comprised 19% of the total loan portfolio, amounting to $1.68 billion. The commercial real estate portfolio, which includes loans secured by owner-occupied and non-owner occupied properties, made up 35% of total loans, or $3.12 billion.
Retail Banking Segment: The retail banking segment provides consumer lending and deposit products, including residential real estate loans, home equity loans and lines of credit, consumer installment loans, and personal checking, savings, and time deposit accounts. As of December 31, 2024, residential real estate loans totaled $2.34 billion, or 26% of the total loan portfolio, while loans to individuals, which include consumer installment loans and credit cards, amounted to $1.36 billion, or 15% of total loans.
Wealth Management and Insurance Segment: This segment offers trust and asset management services, as well as a full range of insurance products, including personal, business, and health insurance. Trust income, which is primarily comprised of fees earned from managing and administering customer assets, was $11.8 million in 2024. Insurance and retail brokerage commissions totaled $11.6 million for the year.
Liquidity
First Commonwealth maintains a strong liquidity position, with a loan-to-deposit ratio of 92.5% as of December 31, 2024. The company's balance sheet remains robust, with total assets of $11.6 billion. Additionally, First Commonwealth's capital ratios exceed regulatory requirements, with a Common Equity Tier 1 ratio of 12.13% and a Total Risk-Based Capital ratio of 14.58% at the end of 2024, providing a solid foundation for future growth and stability.
The company reported a debt-to-equity ratio of 0.23 as of December 31, 2024. First Commonwealth held cash of $133.4 million and had $2.52 billion in available FHLB advances. The company also maintains a $1.09 billion line of credit with the Federal Reserve Bank and $160 million in lines of credit with other financial institutions, further enhancing its liquidity position.
Human Capital
As of December 31, 2024, First Commonwealth employed 1,490 full-time and 60 part-time employees. The company values diversity and inclusion, with 67% of the workforce being female and 8.9% identifying as people of color. First Commonwealth has also made investments in talent development, including leadership training programs and employee mentorship opportunities.
Outlook and Guidance
Despite the challenges facing the banking industry, First Commonwealth Financial Corporation appears well-positioned to continue its growth trajectory. The company's diverse business model, strong capital position, and strategic focus on commercial lending and fee income generation provide a solid foundation for future success.
For 2025, First Commonwealth is projecting mid-single-digit loan growth, driven by a balance of commercial real estate (CRE) and commercial and industrial (C&I) lending. The net interest margin is expected to expand steadily over 2025, ending the year 10-20 basis points higher than its current level.
Fee income is anticipated to be around $22-23 million per quarter in Q1 2025, growing gradually throughout the year. Non-interest expense is expected to be around $68-69 million in Q1 2025, increasing by $2 million in Q2 and another $1.3 million per quarter in the second half of the year after the CenterBank acquisition closes.
The company expects credit costs to moderate, with charge-offs in the range of 25-30 basis points. The CenterBank acquisition, expected to close in Q2 2025, is projected to contribute about $0.01 per share to EPS starting in Q3 2025.
The recent acquisition of CenterBank in Cincinnati is expected to bolster the company's presence in a key Midwestern market and contribute to its earnings growth. Additionally, First Commonwealth's investment in its C&I lending capabilities and other organic growth initiatives should help drive loan growth and improve overall profitability.
While navigating interest rate volatility and managing credit risk will remain key priorities, First Commonwealth's experienced management team and prudent risk management practices suggest the company is well-equipped to weather these headwinds. As the company continues to execute on its strategic initiatives, investors may find First Commonwealth Financial Corporation an attractive investment opportunity in the regional banking space.