Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- First Commonwealth Financial Corp (FCF, Financial) reported core earnings per share of 31 cents for the third quarter of 2024.
- Deposits grew, contributing to a reduction in the loan-to-deposit ratio by 360 basis points to 92.5%.
- The company achieved recognition as the number two SBA lender by dollars in Western Pennsylvania for the 2024 fiscal year.
- Customer satisfaction and net promoter scores reached five-year peaks, indicating strong customer relations.
- The company has been successful in attracting new commercial banking talent, which is expected to drive future growth.
Negative Points
- Net interest margin fell by one basis point to 3.56%, impacted by a rate cut and excess cash holdings.
- Provision expense increased by $2.8 million over the second quarter, largely due to specific reserves for legacy loans and charge-offs related to the Centric acquisition.
- The acquired Centric portfolio continues to impact credit performance, accounting for a significant portion of charge-offs.
- Expenses were elevated at $70.1 million, up $4.3 million from the previous quarter, due to one-time items such as operational losses and severance expenses.
- The company experienced a $3 million decrease in interchange income due to the Durbin amendment, impacting non-interest income.
Q & A Highlights
Q: Can you provide details on the loans that required specific reserves this quarter?
A: (Brian Sohocki, CCO) Two credits drove the specific reserve. The first was a $2.7 million reserve on a $10 million construction loan for a mixed-use property in Pittsburgh, which moved to non-performing due to vacancy and uncertain outlook. The second was a $2.8 million reserve on a $4.8 million term loan in the sponsor finance portfolio, where the long-term outlook is challenged.
Q: What is the expected impact of the legacy credits on future charge-offs?
A: (Brian Sohocki, CCO) We expect to resolve the real estate property appraisals and come to a resolution in the next quarter or two, which should limit incremental provisions for these credits.
Q: How do you see the convergence of Centric's credit performance with the broader portfolio?
A: (Michael Price (Trades, Portfolio), CEO) Criticized loans decreased significantly, and we anticipate the headwind from Centric credits to dissipate in 2025. The core franchise charge-off level is in the low 10s, indicating strong performance.
Q: What is your outlook on deposit growth and its impact on the loan-to-deposit ratio?
A: (James Reske, CFO) We aim for a steady glide path in deposit growth to support future loan growth. The loan-to-deposit ratio is currently at 92.5%, and we have ample liquidity to grow loans.
Q: Can you discuss the impact of rate cuts on your net interest margin (NIM) and deposit costs?
A: (James Reske, CFO) We expect a stable NIM in the near term, with a gradual decline in 2025 due to rate cuts. Deposit costs are expected to plateau, with a cumulative deposit beta of about 25% during rate cuts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
