First Commonwealth Financial(FCF)2024-07-24 20:57Financial Data and Key Metrics Changes - The net interest margin (NIM) expanded by 5 basis points to 3.57%, as loan yields increased faster than funding costs for the first time since Q4 2022 [3][21]. - Core earnings per share were 0.01 for Q2 2024 [122]. - Pre-tax pre-provision net revenue improved by 1.2 million to 4.4 million quarter-over-quarter, but provision expense was elevated due to specific reserves for non-performing loans [130]. Market Data and Key Metrics Changes - Deposit performance in the community PA market was exceptional, contributing to broad-based deposit gathering across most of the footprint [4]. - Non-interest bearing balances increased slightly, indicating a potential end to the outflow of pandemic surge deposits [128]. - The cost of deposits increased by 10 basis points, but the overall impact on total cost of funds was muted by the redemption of subordinated debt [22]. Company Strategy and Development Direction - The company aims for mid-single-digit loan growth by Q4 2024 and into 2025, focusing on well-structured and well-priced loans [4]. - There is a preference for using capital generation to support organic growth, with a cautious approach to M&A opportunities [34]. - The company is focused on maintaining pricing discipline in consumer categories, with expectations that rate cuts could make these categories more attractive in the near future [9][45]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in loan origination capabilities and anticipated stability or slight improvement in NIM for the remainder of 2024, even with potential rate cuts [30]. - The management noted that the recent quarter appears to be the low point for both NIM and net interest income at least through 2025 [32]. - There is an expectation of continued strong performance in wealth management and a focus on maintaining competitive rates on time deposits [123]. Other Important Information - The company redeemed a 50 million tranche of subordinated debt, which is expected to contribute to NIM improvement and net interest income going forward [18][20]. - The company has been cautious with investment real estate, but is starting to see improved pipelines in C&I and commercial real estate [127]. - The company has repurchased just under 23,000 shares this quarter, with 17.1 million remaining in the current buyback program [25]. Q&A Session Summary Question: How does M&A fit into the picture given the current market conditions? - Management prefers to use capital generation for organic growth and has no appetite for special dividends, focusing on smooth and steady increases in regular dividends [34][36]. Question: What is the appetite for continued equipment finance build-out? - The company has seen lighter volume in equipment finance this year but remains profitable and cautious in risk appetite [39][44]. Question: How confident is the company in growing deposits? - Management expressed confidence in growing deposits, particularly in low-cost categories, while acknowledging the competitive landscape [49][50]. Question: What is the expected impact of the Centric portfolio on overall performance? - Approximately 51% of special mention and 55% of substandard credits are related to loans from the Centric acquisition, but management is optimistic about returning to historically strong credit metrics [80][131].