First Commonwealth Financial ((FCF)) has held its Q4 earnings call. Read on for the main highlights of the call.
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First Commonwealth Financial’s latest earnings call revealed a generally positive outlook, underscored by strong deposit growth, improved credit metrics, and strategic acquisitions. Despite these encouraging highlights, the company acknowledged challenges such as loan growth hurdles, elevated credit costs, and net interest margin compression.
Strong Deposit Growth
The company’s average deposits surged by 8.7% in the fourth quarter, marking a year-over-year increase of $451.1 million or 5%. This growth is a testament to First Commonwealth Financial’s robust deposit strategy and its ability to attract and retain customer funds.
Improvement in Credit Metrics
First Commonwealth Financial reported a decline in non-performing loans (NPLs) from 0.83% to 0.68%, showcasing an enhancement in credit quality. Additionally, their reserves-to-loans ratio remained above peer levels, reflecting the company’s prudent risk management practices.
Fee Income Resilience
Despite facing a $6.7 million impact from the Durbin Amendment, the company managed to increase fee income year-over-year by $2.6 million. This growth was driven by improvements in mortgage, wealth, and SBA services.
Strategic Acquisition
The acquisition of CenterBank in Cincinnati was announced, which is expected to positively contribute to earnings beginning in the third quarter of 2025. This strategic move aims to expand First Commonwealth Financial’s market presence and operational capabilities.
Net Promoter Score and Customer Satisfaction
Customer experience metrics reached historic highs, with significant improvements in the Net Promoter Score and branch customer satisfaction. These metrics are indicative of First Commonwealth Financial’s focus on enhancing customer relationships and service quality.
Loan Growth Challenges
Loan growth was modest, with a fourth-quarter increase of just $23.5 million, reflecting an annualized growth rate of 1.04%. This underlines the challenges the company faces in accelerating its lending activities.
Credit Costs and Charge-Offs
The earnings call highlighted elevated credit costs and charge-offs, primarily driven by acquired Centric loans. However, these were previously reserved for, indicating proactive risk management by the company.
Interest Margin Compression
A slight compression in total net interest margin (NIM) by 2 basis points was observed in the fourth quarter, pointing to ongoing pressures in maintaining interest income levels.
Deposit Pressure
The company experienced persistent deposit pricing pressure, with a modest 1 basis point decline in total deposit cost, reflecting a competitive deposit environment.
Guidance
First Commonwealth Financial provided optimistic guidance for 2025, meeting consensus earnings estimates with a net interest margin of 3.54% and a core efficiency ratio of 56.1%. The company anticipates mid-single-digit loan growth, driven by commercial real estate and C&I loans, and expects an expansion of 10 to 20 basis points in NIM by the end of 2025. The strategic acquisition of CenterBank is projected to contribute positively to earnings, while fee income is expected to remain robust.
In summary, First Commonwealth Financial’s earnings call conveyed a positive sentiment, with significant deposit growth and strategic initiatives promising future growth. Despite challenges in loan growth and margin pressures, the company remains optimistic about its financial trajectory heading into 2025.
