First Commonwealth Financial (FCF) Q3 Earnings call transcript Oct 30, 2024
2min read In the third quarter of 2024, First Commonwealth Financial Corporation (FCFC) reported a core earnings per share of $0.31, with loans remaining essentially flat. Deposits grew, but the net interest margin fell by 1 basis point to 3.56%, reflecting rate declines and a $3 million decrease in interchange income due to Durbin. The company's expenses were higher due to several one-time items, but management remains optimistic about the company's prospects for future growth.
Credit Performance and Challenges
The quarter saw a significant increase in provision expense due to specific reserves for legacy loans and charge-offs related to the Centric acquisition. Centric loans, which account for a large portion of commercial and total charge-offs, have posed a significant challenge for the bank. Despite this, management remains confident that they are making progress in managing these credits, particularly in the capital region. The company aims to converge the credit performance of the Centric portfolio with the strong credit metrics at First Commonwealth overall, which will serve as a key source of future growth.
Financial Metrics and Outlook
Key financial metrics for the company include a pretax pre-provision return on assets (Pretax pre-provision ROA) of 1.73% and an efficiency ratio of 56.6%. Noninterest income was slightly lower than expected due to the impact of Durbin, but management expects it to be in the $22 million to $24 million range in the fourth quarter. The company also highlighted its strong performance in SBA lending and gain on sale income, which helped mitigate the impact of the Durbin amendment.
Strategic Initiatives and Future Plans
FCFC has been focusing on strategic initiatives to reduce exposure to certain sectors, such as sponsor finance, and on selling nearly all of its mortgage originations. This deliberate approach has contributed to a relatively healthy level of loan originations this year, despite overall loan growth being muted. The company is also investing in attracting new commercial banking talent and regional expansion, particularly in central and Eastern Pennsylvania markets.
Earnings Call Tone and Sentiment
The tone of the call was generally positive, with management expressing confidence in the company's performance and prospects for future growth. However, there were also acknowledgements of challenges and uncertainties, particularly related to the Centric acquisition and the impact of rate cuts on the net interest margin. Despite these challenges, the company remains optimistic about its ability to navigate these issues and continue growing its business.
Key Takeaways
The earnings call revealed several key themes and trends for First Commonwealth Financial Corporation. The company is facing challenges in managing the legacy loans from the Centric acquisition, which have had a significant impact on credit performance. However, management is optimistic about the bank's prospects for growth, particularly in the context of strategic initiatives and talent acquisition. The company is also focused on managing the impact of rate cuts on the net interest margin, which could potentially be offset by tailwinds such as the expiration of received fixed macro swaps and the removal of excess cash. Overall, the earnings call provided valuable insights into the company's financial health and strategic direction, offering a comprehensive view of its performance and future outlook.
