First Commonwealth Financial Corporation Stock

Hello, everyone. Thank you for joining us, and welcome to the First Commonwealth Financial Corporation Q2 2026 Earnings Release Conference Call. [Operator Instructions]

I will now hand the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead.

Thanks, Jonah, and good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation's second quarter financial results. Participating on today's call will be Mike Price, President and CEO; Jim Reske, Chief Financial Officer; Mike McCuen, Chief Banking Officer; and Brian Sohocki, Chief Credit Officer.

As a reminder, a copy of yesterday's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page. We have also included a slide presentation on our Investor Relations website with supplemental information that will be referenced during today's call.

Before we begin, I need to caution listeners that this call will contain forward-looking statements. Please refer to our forward-looking statements disclaimer on Page 3 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.

Today's call will also include non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. Reconciliation of these measures can be found in the appendix of today's slide presentation.

With that, I will turn the call over to Mike.

Thank you, Ryan. Second quarter financial performance of First Commonwealth and highlights include core earnings per share of $0.44 up $0.07 over the first quarter, a core ROAA of 1.46% and core pretax pre-provision ROAA of 2.14%, a core efficiency ratio of 52.24% and a net interest margin of 4.01%, which expanded 9 basis points as a function of lower deposit and funding costs, higher loan yields and securities purchases.

All key income statement categories moved positively quarter-over-quarter to include net interest income, provision expense, noninterest or fee income and noninterest expense. Second quarter loan growth of 1.97% annualized was matched by average deposit growth of 2.03%. Loan growth for the quarter was led by equipment finance, commercial construction, branch-based home equity loan lending and our indirect lending business, all of which offset contraction in commercial real estate and C&I lending.

The quarter was notable due to a record quarter of commercial loan payoffs of roughly $740 million following a record first quarter of commercial loan payoffs of roughly $630 million. Commercial loan originations increased to approximately $693 million in the second quarter. Although charge-offs remain elevated as we continue to resolve identified problem credits, credit quality improved modestly in the second quarter with lower nonperforming loan balances alongside stable delinquency and allowance levels.

Other items that may be of interest to investors include for the year, Community PA and Cincinnati, 2 of our 5 regions have led the way with deposit -- both deposit and loan growth. Fee income grew in part year-over-year due to nice traction in mortgage and wealth management businesses. And the team continues to find uses for AI. And we felt like we're on our front foot with IT and technology for years, particularly with our fintech partnerships. But let me just give you one AI example. In our call center, our vendor turned on a feature where AI listens to the call and pops the policy and procedure to the employee to help navigate a solution for our clients. And oftentimes, they're navigating up to 6 different systems at one time. Just one small example of probably a dozen or more.

With that, I will turn it over to Jim Reske, our CFO.

Thanks, Mike. Mike has already summarized the second quarter's financial performance, so I'll try to provide some additional detail around the margin, fee income and expenses as usual.

The net interest margin improved by 9 basis points to 4.01%. While average deposits grew by 2.03%, period-end deposits were down at an annualized rate of 5.77% with about 2/3 of the decline coming from time deposits. With excess cash on hand and limited loan growth, we priced time deposit promotions less aggressively compared to competitors in the second quarter, resulting in outflows towards the end of the quarter.

That tighter deposit pricing obviously helped the NIM. About 6 basis points of the 9 basis points of improvement came from lower funding costs with the cost of deposits falling by 5 basis points to 1.74%. The other 3 basis points came from the asset side of the balance sheet, driven by a combination of higher loan yields and the investment of excess cash into securities. The rate environment continues to allow us to reprice our loan book upward with fixed rate loans repricing upward by 61 basis points. The yield on the loan portfolio improved by 4 basis points from 6.03% to 6.07%. The expiration of $150 million in macro swaps on May 1 contributed to the increase in loan yields.

Looking ahead to the second half of 2026, we see net loan growth picking up as production continues and payoffs normalize, returning loan growth closer to our mid-single-digit guidance, while the NIM will benefit from the rate environment but suffer from stiffer deposit competition. We expect that will leave the NIM in the low 4% range.

Fee income was up by $2.3 million from last quarter. Fee income benefited from an $806,000 gain from the redemption of a $6.6 million sub debt instrument inherited from a prior acquisition, along with a $450,000 BOLI death claim, which together accounted for about $1.3 million of the $2.3 million of improvement. We also had an increase of about $0.5 million in interchange and deposit service charges. Our previous guidance for fee income to range from $24 million to $25 million per quarter for the remainder of this year remains unchanged.

Noninterest expense improved by $1.3 million from last quarter. Salary and hospitalization expense did go up in the second quarter, offset somewhat by a vendor rebate of approximately $450,000. But the quarter-over-quarter comparison benefits from a few discrete expense items that hit us in the first quarter, including about $0.5 million of snow removal costs in the first quarter and a $0.5 million FHLB prepayment penalty in the first quarter. Our previous expense guidance of about $74 million to $76 million per quarter remains unchanged for the remainder of 2026.

We repurchased approximately $12 million in stock last quarter at a weighted average price of $18.66. We had approximately $13 million remaining in repurchase authorization at the end of the second quarter. And yesterday, our Board approved an additional $75 million in repurchase authorization. We intend to continue share repurchase activity in the third quarter.

Tangible book value per share grew to $11.58, up from $11.34 last quarter and $10.63 a year ago. Compared to last quarter, our CET1 ratio has improved from 12.5% to 12.6% and our tangible common equity ratio increased from 9.7% to 9.9%.

And with that, we'll take any questions you may have.

[Operator Instructions] Our first question is from the line of Daniel Tamayo at Raymond James.

Maybe we start on the credit side. Just curious if you could provide some details. I guess the bigger increase, and neither was a huge increase, but a little bit of an increase in classified loans. If you could kind of give us some color on what was driving that in the quarter?

Yes. Daniel, I can jump in. Maybe just taking a look at criticized overall to start. As a whole, the overall trend remained relatively stable. We ended the quarter at 3% of loans, essentially unchanged. Within that portfolio, however, we saw some migration between special mention and substandard. It was really about $10 million and 2 credits. That resulted in the modest increase in classified assets that you saw.

Importantly, the migration occurred within previously identified criticized relationships rather than a broad influx of new problem credits. As a result, the classified balances increased, but we didn't see a corresponding increase in the overall level of criticized assets, which was a positive. And as Mike said in his comments, at the same time, several -- the indicators that we view as leading measures of the portfolio direction improved during the quarter. Watch balances decreased by some $30 million. Delinquency was stable and the other portfolio asset metrics improved as well as we dug down into the portfolios.

All that said, classified assets and nonperforming loans remain elevated above our long-term objectives, and we'll continue to work through those in the future quarters and expect a little bit of a degree of volatility or variability, I should say, in charge-offs and problem loans as we go through those categories.

Yes, that was my next question was just on the charge-off side. I mean, I'm just curious if you can put a little finer point on that in terms of what we may see in terms of charge-offs near term before they come back to somewhat normalized levels.

Yes. It's hard to put an exact number on it. You saw that we increased reserves in the first quarter. If you go back to last quarter, we had 3 commercial credits with reserves kind of totaling about $11 million. One of those worked through the process in the second quarter and was part of the charge-offs. We had an individual credit that had a $3.4 million charge-off and a prior period reserve of $3.25 million.

So as we go through that, we'd expect a little bit of action from those reserves and individual credits before we revert back to kind of where we've seen our charge-offs. If you look at a 3- and 5-year history, we've been right at about 30 basis points to 32 basis points, and we'll see ourselves revert back to that norm over time.

Okay. That's helpful. And then maybe just quickly for you, Jim, on the margin guidance. I appreciate the low 4s thoughts. I mean it sounds like that means maybe you're expecting a little bit of expansion here in the back half as you think about it holistically. Is that about the levels do you think that you might stay in the low 4s as these kind of competing factors on both sides start to stabilize? Or do you think there's the potential for continued expansion in '27?

Yes. I'm hesitant at this point to give that guidance into '27, Dan. I was trying to look just for the remainder of this year. I mean the runs we did -- the most recent runs we did, did have the margin drifting up towards -- for the second half of this year. And I can tell you even explicitly that the run we did, the last run had the margin with no rate increases at all going to 4.08% in the fourth quarter and 4.13% if there was one hike in September. But that latest run, I'm taken with a grain of salt for my guidance because that did include the latest and greatest information we have about deposit competition, which is really heating up in our market.

We were able to bring deposit costs down in the second quarter in a really healthy way, which is good, especially after having lagged some peers doing that. So we were able to bring that down, we saw an outflow of CDs and now we see deposit pricing competition picking up. So that -- all that works together to bring that guidance to the low 4s. But at this point, I can't -- the crystal ball doesn't go out into 2027 yet.

I appreciate you going over those. Yes, the pushes and the pulls. Appreciate the answers, guys.

Your next question is from the line of Karl Shepard at RBC Capital Markets.

Mike, you touched on the record payoffs again this quarter. I guess, could you frame up maybe what you see as a more normalized range? And then do you have visibility into that in the third quarter and maybe a little bit into the fourth quarter as well?

We do expect them to subside somewhat. We think we've had probably half a dozen or so larger ones that were more one-offs and just outright sales and getting out of real estate. A lot of them obviously are construction. A lot of them are planned going to the permanent market. That being said, we just feel regarding loan growth, we have good growth in construction fundings. We hit the tipping point there. Business banking and our corporate bank, we have good momentum in each market.

Our consumer is growing and probably most importantly, talent and execution just continues to improve. In the first half of the year, we grew 2 of our 5 regions. We expect to grow all of them in the second half of the year. So just momentum in just getting beyond this. So it's not perfect, but that's kind of my best take from the vantage point in July.

Okay. I appreciate that. And then I know this comes up on every quarterly call, but on the buyback, you've gone over kind of your framework before, but the authorization is a little bit larger than you've had. So anything you want to message with the bigger number out there this quarter?

Yes, just -- I mean we are just drifting up all the time. I mean Jim and I put our heads together and at 9.7% and 9.8%, and it's going to continue to drift, even if we start to hit our loan growth targets, we just thought it might be prudent to get a little larger authorization in place. Jim, why don't you add to that?

Yes, just exactly that. I mean the capital ratio keeps drifting upward and upward. And like Mike said, even we have plenty of capital to, first and foremost, capitalize organic growth, which is the first priority. But even then, if the capital TCE ratio gets to where it's pushing 10%, it goes beyond 10%, it's very hard to earn a respectable return on equity. Now we were really pleased to see the ROTCE over 15% this quarter, but it's harder and harder to do that if you have excess capital.

So we bought back some shares. I think when I look back now in the second quarter, we purchased it at $18.66, which we bought back a whole lot more given the price today. So that we'll probably be a little more aggressive going forward.

Your next question is from the line of Kelly Motta at KBW.

I think putting together some of your margin commentary, one thing you noted was the increased deposit competition. I was hoping you could provide color as to what you're seeing in your markets, one? And then two, your balance sheet flexibility allowed you to be a little bit more discerning. Just wondering how you're thinking about that loan-to-deposit ratio and the additional flexibility you may have there.

Yes. Specifically, and I'll let Jim amplify that on the deposit side, our money market, we feel we're very competitive, but more on the CD side. And we felt that pressure really just in the last month or so. Jim?

Yes, that's right. That's right. We -- the competition, Kelly, is really in the time deposits. And if I look back in COVID, we just said way back, we didn't have a very large time deposit book. We run some of that down, but now it's a fairly decent sized time deposit book, about $1.7 billion. And so we have to price it to maintain that deposit book and grow it. We had so much excess cash in the second quarter that we felt like we didn't need to be so aggressive and pulled back a little bit and loan behold right towards the end of the quarter, in June, as Mike was saying, the deposit competition heated up and we saw the outflow. So we need to react to that.

And that's really to bring up to the minute. We saw even just yesterday a couple of more competitors raising CD rates to rates that have 4 handles on them. The competition really is not so far anyway in the money market product. That's still in the mid-3s. But the CD competition is heating up, and it's across the board. It's not just online banks. It's not just credit unions. It's not just smaller banks, it's everybody. So you cannot ignore that and maintain your CD book. So we're -- we raised rates already to do that, and we'll continue to do that to grow our deposits to fund our loan growth.

Kelly, forgive me, the second part of your question?

Just the flexibility on balance sheet, and you did have a bit more flexibility this quarter to let some deposits go. So wondering where you're comfortable with taking that loan-to-deposit ratio.

That's right. We like it where it is in the low 90s. But it's not binding. We've worked hard to get there. I mean we've -- after Silicon Valley, we really have grown our deposits about 5% a year, each year, and we worked it down from 96%, 97%. And so it feels like a good place to be, and we don't want to give that away. And quite frankly, our customers didn't have rate with us. They were just loyal customers and they were getting rates somewhere else, and we've worked hard to gather the CD book. We appreciate it. It's come mostly from our own customers, and we just don't want to give that away. And it remains a nice way to continue to grow deposits and in a way that -- and our loan yields are good.

Got it. That's helpful. And then on the growth and the payoffs you saw, you noted that there was pressure on CRE, which I think you had touched on earlier and also C&I. Can you provide color as to where line utilization stands and how that compares to normalized levels and any dynamics factoring in there?

Yes, it's drifted up. We've been monitoring that and watching that with just the line utilization of revolving commercial lines and C&I lines drifting up over the last 3 quarters. So the one commentary I'd give you, Kelly, is that the production has been really good. It's just the payoffs have been -- the payoff crescendo has continued and gotten stronger. If that crescendo and the payoff slows down even a little bit, we'll have really good loan growth.

Now of course, that will put pressure on the deposit growth and make sure we fund that loan growth with deposits, but it will all work together. But we're really pleased with the -- just the production side.

Yes. Kelly, we also feel like we have 6 buckets of lending, commercial real estate, C&I, equipment finance, mortgage, branch-based consumer lending and indirect auto. And now in the second half of the year, just going in, we have 4 of those 6 growing between equipment finance, indirect auto, HELOC, HELOAN and probably going to get there with C&I and commercial. So just -- we're pretty broad-based, and we just feel like we have momentum in those few businesses. Mortgage, we're still selling most everything we originate. And by the way, mortgage is a good story year-over-year on the fee side, up almost $1 million, I believe. And we just have good pipelines despite the rate environment. So we just feel good about loans and where we're at.

Last question, if I could just slip it in, is just on that -- it sounds like everything on the production is very constructive. What do you think is driving that? And what are you seeing as you're talking about borrowers to your borrowers? Are they just more comfortable where we are now? Just any color would be really helpful as we think about what's been impacting that uptick.

On mortgage or on all?

I was talking mostly commercial, but I'm happy with whatever color you can get.

I just think our retail model is coalesced with really good leadership and new leaders over the course of the last few years and just better and better teams that are just getting more sophisticated. We really like the fact that our business banking, which is the lower end of commercial has really gathered momentum in the last 1.5 years to 2 years. We've added a lot of professionals to that space. That's obviously very granular. On the lower end, it comes with a lot of deposits.

So at the end of the day, it does get down to talent and execution. We've added talent on that team. The other thing is we've complemented with just a pretty strong and a TM function that's getting better and has more capability because our borrowers need more than just a loan. They have deposit relationship. And then even we're doing a better job of cross-selling our wealth management, our insurance. You see that in the numbers and how we've recouped what we've lost with the $13.5 million of crossing $10 billion. And so it is all coming together, and we feel like the best years are ahead of us with the team we have now.

Your next question is from the line of Manuel Navas from Piper Sandler.

It seems like you guys have some nice confidence on the production levels in terms of loan growth. How fast can you see loan growth kind of get back to mid-single digits? Is it as soon as third quarter? Do you need it to build a bit more? Just kind of some thoughts on the pipeline here into the near term, back half of the year.

Yes. Good question. I mean last quarter, we sold a $200 million portfolio, and we had a downdraft of another $100 million. So it was quite a climb from that spot and the payoffs we had with more payoffs to get to 2% annualized. So we do feel like we have some momentum in that -- the mid-single digit is good guidance for us. We are -- as you've seen over the years, we really believe deeply in the concept of operating leverage. So we manage with a lot of cost discipline. And we feel like 4%, 5%, 6% is enough to really leverage into good earnings per share growth and value creation.

Another lever we like is we just feel like we can do a better and better job with fee income. And that's one of the reasons we've really moved pretty decisively to a regional model. We report by line of business, but we execute and we win in discrete regions throughout the company. And that's the conclusion we came to. It's a little bit more expensive model, but we have good leaders, and we're confident that it will create differentiation over time.

What's your appetite for continued talent acquisition? Does that pipeline continue? Or are you kind of seeing it try to produce now and taking a step back?

I'll tell you -- I'll share you an anecdote is that one of our very wise leaders put in a ghost position. And what he meant by that was I want to be able to hire the right person at any time that I find her or him. And I love that. I love the confidence, and that's the way we feel. When we find good people, we got to find a way to get them on the payroll and move the company forward with the right kind of rate makers. Consequently, we've lost very few of them over the years. And so that speaks to the culture and the good leaders that we have. And so not everybody has caught on yet, but after this call, I guess they will. But I thought that was cool.

I appreciate the color. Can I shift over to NIM for a moment? What are kind of like new loan yields coming on at? And I'm just trying to think of the marginal aspects to it. And how big of a shift? And I guess you say CD book is more like 4.5% competitors. Kind of where is your marginal deposit cost right now? And if you could kind of walk through those near-term kind of drivers of NIM, please?

Yes. So I'll try to answer those, but if I forget part of the question, just refresh my memory. I think the new cost of deposits blended overall coming on was 3% for a good part of the quarter, but that changed more towards the end of the quarter with the deposit competition, that's going to drift upwards. So that's if you take the blended average of all the deposit growth categories, including NIB, you get kind of a 3% cost of deposit acquisition cost overall.

But like I said, the CD rates are definitely going to be in the -- the promotional rates are going to be in the 4s going forward. The loan yields coming on, new loans coming on in the mid-6s, [ 6-4 ] loans coming off a little bit lower than that. So that's why you get positive replacement yield so far. The differential is much wider in the fixed rate loans. The variable rate loans you think at all the production, variable is about 2/3 of production, fixed is about 1/3 of production roughly. And the positive placement yield that I mentioned in my prepared remarks is 61, that's on the fixed rate.

The variable rate, if the spreads maintain the same level, then the replacement yields are net to about 0. It fluctuates a little bit quarter-over-quarter, but it's not much. So that's the dynamic there.

Can you talk a little bit about the repricing potential on the fixed rate side, like over time, maybe the rest of this year into next year?

Yes. I mean if the Fed holds where they are now, we're really happy with 61 basis points on the fixed rate side. That's on the loan side. On the securities side, it was better, but it's skewed a little bit because we accelerated some securities purchases with the excess cash. The securities portfolio yield is low compared to the opportunity right now of new rates. We're able to purchase these securities at low 5s right now. So that placement yield there is pretty strong. But if the Fed just holds where they are for a while, we'll eventually reprice the whole loan book, except for the low rate mortgages that are hanging on until that aren't prepaying until they move over the house burns down.

Is the fixed rate volume is still about 1/3 of overall volume?

Yes, overall. And that's all categories. That's not just commercial, that's everything, HELOCs and equipment finance, everything.

[Operator Instructions] Your next question is from the line of Matthew Breese at Stephens Bank.

I guess, I don't know you've fully answered this, but what gives you the confidence that we're going to see a slowdown in payoffs? Is it just that the current pace is unsustainably high in the normal such a lower amount that we got to get there at some point, reversion to the mean?

And then the other question I have was if you strip away equipment C&I growth, it looks like nonequipment-based C&I growth has been down for maybe 4 consecutive quarters. Is that expected to turn around as well? And what does the pipeline look like there?

Yes. Great question. I think the anecdote around each payoff is an important factor in our guidance on that and the size of the payoffs. I mean, we just don't have that many loans over $50 million anymore. And on the C&I side, we're working really hard to grow it and to grow it granularly with business banking and middle market loans. And we've worked from a decade ago, we had all the SNCs. So we don't have $100 million of SNCs left. It's that.

And so even though the -- so the composition of the C&I book over the years has changed. When you talk about the last 4 quarters, just the pipelines and particularly the pipelines in business banking and really that under $5 million range has grown as we've invested in that team in the last year plus. I hope that's helpful.

Jim, maybe just thinking through if -- I know securities aren't your first option. But if loan growth is -- let's just say loan growth is on the lower end of the mid-single digits and capital is building, do we continue to see some securities purchases? And where would you like to see that as a percentage of assets?

It depends on -- it's a great question. It depends on the funding side. So we really don't believe in balance sheet leverage. Let's go out and borrow a lot of money overnight and buy securities with that to leverage the balance sheet. We'd just rather not do that rather have a more concentrated balance sheet with less leverage where we really make our money by taking deposits and making loans. But if we had great deposit growth and excess cash and lower -- slower loan growth like we did in the second quarter, then yes, securities are a good option, especially when we can get rates where they are now in the low 5s.

But it's not our go-to option, we don't -- we really don't believe in borrowing excess funds just to purchase securities and get that kind of balance sheet leverage. It dilutes NIM, it dilutes ROAA. It gets you little EPS, but it's -- in the long run, it's not a winning strategy for a bank like ours. Was there another part of your question?

Everything we saw this quarter was really kind of like a prefunding of stuff that's maturing.

Yes, that's right. That's right. So then -- yes, and then -- right. And then we saw with the way we're pricing CDs, these funds started to have these outflows towards the end of the quarter. And so we got to react to that. If anything goes right, we have the mid-single-digit loan growth, we have the mid-single-digit deposit growth and loan deposit will grow. And as capital grows, we use -- we retire some shares and the capital ratios more in line with norms so the capital ratios don't grow in the sky. We can earn a respectable return on that capital. That's the balance we're shooting for.

Okay. Within expenses, one area I noticed is just that your FDIC insurance expense has been like clockwork between $1.4 million and $1.7 million per quarter. It dipped to $1.1 million, and I'm curious just kind of what happened there and if anything within it's kind of onetime or nonrecurring in any way?

No, that's more of a new run rate. That's based on our new assessments. So we're very happy about that. I can't say a whole lot more about it, but it's very, very positive.

Okay. And I don't know if you provided, but did you have the spot cost of deposits for the month of June or at the end of June, just to give us some idea of where this thing might be heading?

I did not provide that, but I don't mind providing that. I can get it for you in a minute. It's take me a second. So you're looking at the total cost...

Yes, I'll give you one more question while you pull it up.

Yes, you can ask somebody else.

Obviously, wars left rates unchanged today, but it feels like the bias is towards hikes. If we do get a hike or 2 this year, kind of what's the reaction to the NIM? I think, Jim, you had mentioned 4.08% by the end of the year, but with the hike, we got the 4.03% that seemed a little backwards to me, and I was hoping you could flesh that out.

Thank you so much for letting me clarify. No, no, with the hike, it was 4.13%. But the adjustment I'm making is that I know that those forecasts we did do not take into account the latest thinking on deposit prices. That's why I backed off to our NIM guide to the low 4s. But the relationship is about the same. If we get a hike, you get about a 5 basis point lift for a 25 basis point hike, a 5 basis point lift in the NIM. It's been that way for a while. So it's -- we're still asset sensitive, and it's a benefit to us.

That's all I have. If you happen to have the spot cost, I'll take it. If not, I'm all set.

Yes. Okay. I might take a second or 2 sorry. [ 1.71. 1.71 ] in June.

Well, it's a step in the right direction then.

There are no further questions at this time. We've reached the end of the Q&A session. I will now turn the call back to Mike Price, President and Chief Executive Officer, for closing remarks.

I appreciate your interest in our company. I appreciate the questions. It's fun running a bank, commercial and a consumer bank, and we feel like we're very relevant to our customers here in Central and Western PA and Ohio. And we also feel like we're a good bank. We do a lot of the right things for our clients. And first and foremost, we listen to them. And -- but thank you and look forward to seeing a number of you over the course of the next quarter in the field.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the First Commonwealth Financial Corporation First Quarter 2026 Earnings Release Conference Call. [Operator Instructions]

And I would now like to turn the conference over to Ryan Thomas, Vice President of Finance and Investor Relations. You may begin.

Thanks, Abby, and good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation's first quarter financial results. Participating on today's call will be Mike Price, President and CEO; Jim Reske, Chief Financial Officer; Brian Sohocki, Chief Credit Officer; and Mike McCuen, Chief Lending Officer. As a reminder, a copy of yesterday's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page.

We have also included a slide presentation on our Investor Relations website with supplemental information that will be referenced during today's call. Before we begin, I need to caution listeners that this call will contain forward-looking statements.

Please refer to our forward-looking statements disclaimer on Page 3 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.

Today's call will also include non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. A reconciliation of these measures can be found in the appendix of today's slide presentation.

With that, I will turn the call over to Mike.

Thank you, Ryan. Good afternoon, everyone. Several headlines for the first quarter of 2026 follow. Net income of $37.5 million resulted in $0.37 of earnings per share as compared to our consensus earnings estimate of $0.40. Net interest income was down from $4.2 million for the quarter to $109.3 million as we sold $210 million of Eastern PA commercial loans and loan balances fell another $74.2 million due to heightened payoffs.

Our commercial loan repayments swelled to $630 million in the first quarter, up some $150 million over the first quarter of 2025. In the first quarter, we had 18 successful CRE projects.

They were refinanced or sold, representing a payoff of approximately $240 million in loan outstandings. The net interest margin or NIM fell as expected to 3.92%. Among other items, positive replacement yields on new fixed rate loans in the first quarter were 54 basis points higher and coupled with $150 million of swaps rolling off in the second quarter, this should provide the impetus for further NIM expansion.

Deposits grew 6.3% end-to-end annualized in the first quarter, and our money market promotions have resulted in new consumer checking accounts. Heretofore, we have been reticent to aggressively drop rates. But given the elevated loan payoffs and a markedly lower loan-to-deposit ratio, we are well positioned to test lower deposit rates in the next several quarters.

Noninterest expenses were up $1.2 million to $75.5 million in the quarter as salaries and incentives increased alongside $500,000 of prepayment fees for the repurchase of long-term debt.

Our efficiency ratio climbed to 55.4%, and we intend to slow down our expense growth rate. The provision for loan losses increased $3.7 million to $10.7 million on a linked-quarter basis as we had $9.6 million in specific reserves for 3 larger credits, one of which was from Eastern Pennsylvania.

Our nonperforming loans or NPLs to loans remained stubbornly high at 0.98% in the first quarter, specifically 3 previously discussed relationships totaling $20.5 million moved to nonperforming status during the quarter with $9.6 million of associated specific reserves.

These downgrades offset otherwise positive asset resolution during the quarter. And please recall that of our $92.3 million in NPLs, $28.1 million or 30.4% is guaranteed by the SBA. The balance sheet and liquidity continued to strengthen in the first quarter as we paid off virtually all borrowings, lowered our loan-to-deposit ratio to 91% and grew tangible book value per share by 4.3% while at the same time repurchasing our stock.

Other notable first quarter items include our Center Bank acquisition has exceeded financial expectations and helped lead Cincinnati to company-leading loan and deposit growth in the second quarter. Residential mortgage had a strong first quarter with both loan volumes and gain on sale income.

The Small Business and Business Banking segment volumes were brisk as we have added new bankers and enhanced credit processes. Also, our retail bank had the highest Net Promoter and customer satisfaction scores since we began tracking. As we think about the ensuing quarters in future, it will be important that we focus on the basics, namely live our mission, grow the bank, get better.

As we grow the bank, we must do so steadily and ensure our credit costs converge and surpass peers. Getting better will necessitate new approaches and technologies to both make it easier for customers to do business with First Commonwealth while simplifying internal processes.

Given our adoption of fintech over the years and our current AI usage, we have important tools to continue to evolve our company. Simultaneously, we must become more efficient as we scale the bank. Our first strategic initiative, live our mission to improve the financial lives of our neighbors and businesses remains the cornerstone of our brand and is what sets us apart as a community bank.

With that, I'll turn it over to Jim Reske, our CFO.

Thanks, Mike. Mike has already provided an overview of financial results, so I'll drill down a bit on spread income and the margin. Spread income was down from last quarter by $4.2 million, but approximately $2.6 million of this decline can be attributed to having fewer days in the quarter. The remainder stems from the lower level of earning assets and the impact of last quarter's Fed rate cuts on the variable rate loan portfolio.

The Fed cuts resulted in a 9 basis point contraction in the yield on earning assets, somewhat offset by a 5 basis point decrease in the cost of funds. The decline in earning assets is largely the result of the disposition of $210 million in loans that were moved to held for sale at the end of the fourth quarter.

This quarter's net interest margin or NIM of 3.92% is in line with our previous guidance. While it is down from last quarter's 3.98%, the NIM in the fourth quarter benefited from about 3 basis points from several unique items that we talked about last quarter, including the recognition of accrued interest from the payoff of several loans that had previously replaced on nonaccrual status.

Looking ahead, the NIM should benefit from fewer-than-expected rate cuts to keep the variable rate loans from repricing downward while continuing to allow the fixed rate loans and securities to reprice upward.

And the expiration of $150 million of macro swaps on May 1 this Friday is even more valuable in a higher rate environment as it will allow those loans to flow to higher rates than expected. Based on our new one cut base case, we are revising our previous NIM guidance upwards slightly, about 3 to 5 basis points higher each quarter than before, drifting upwards to the low 4% range by the fourth quarter of this year.

First quarter noninterest expense or NIE, increased by $1.2 million from last quarter, but first quarter NIE included about $1.3 million in expense for finalizing incentive payments related to prior year volumes and performance similar to the first quarter last year, along with the $500,000 FHLB prepayment penalty that Mike mentioned.

We expect NIE per quarter to hover in the $74 million to $76 million range this year. Fee income is a little changed from last quarter. First quarter fee income included approximately $435,000 from the payoff of several loans that had been included in the held-for-sale portfolio at year-end, where they paid off at par, the difference between par and the mark was recognized as fee income.

Wealth, mortgage and SBA are all up significantly from the same quarter a year ago. Fee income should range from $24 million to $25 million per quarter this year. We repurchased approximately $22.7 million in stock last quarter at a weighted average price of $17.67.

We have $25 million remaining in repurchase authorization, not the $18.4 million figure that was in the earnings release. We announced a $0.02 increase in the dividend yesterday, marking the 11th straight year of dividend increases. Combined with the dividend, we returned nearly 100% of internal capital generation to our shareholders last quarter, and yet tangible book value per share grew from $11.22 to $11.34.

We intend to continue share repurchase activity in the second quarter. Our CET1 ratio improved from 12.1% to 12.5%. Our TCE ratio was unchanged at 9.7% And with that, we'll take any questions you may have.

[Operator Instructions] And our first question comes from the line of Daniel Tamayo with Raymond James.

Maybe starting just on the increase in the charge-offs. I appreciate the comments on the loans that were paid down or sold in the second quarter early on. Maybe just a clarification on that. First of all, were there any charge-offs associated with those credits that were sold or paid off? And then, Jim, I was just wondering if you had any thoughts on provision or net charge-offs for the rest of the year.

Brian Sohocki?

Yes. Daniel, I can jump in. The charge-offs from the portfolio, we recorded $2.8 million during the fourth quarter when we moved them to held for sale. And then there was approximately $400,000 that had paid off at par that were reversed and run through the income statement in the first quarter.

As you look at the other charge-off activity, my comment would be that we remained above our long-term target, but we did improve sequentially. And the level continues to be driven by a limited number of isolated credits. We're not seeing any indicators of systematic stress across the portfolio.

Overall, the performance has been remaining consistent outside of those isolated numbers. And I think your last part of the question was just related to the activity in the press release post quarter end. There was 2 names that were in nonperforming at the end of the first quarter.

One, we ultimately exited via a loan sale and incurred just a charge-off outside of our reserved amount of just under $150,000. The second was an exit full payoff at par.

Okay. Very helpful. And I appreciate that detail on the second quarter. So I think what you're saying is you're -- and correct me if I'm wrong, you're expecting -- I guess you said they were a little bit above your long-term target in the first quarter.

So that should drift down towards that range kind of as the year plays out. Is there like a ramp down, you think still from here? Or we're moving pretty quickly back into that range?

Yes. We'll continue to work through the resolution. Specifically, as you saw in the release, the one item which was moved to NPL during the first quarter is a second quarter charge-off. So more of a slow ramp down to the historical level as we resolve those credits that moved into NPL.

Okay. Great. That's helpful. And then, Jim, maybe or Mike or anyone on the loan growth. Just curious what paydown activity looked like in the first quarter, kind of how you're forecasting that to trend down for the rest of the year and how that offsets against origination activity?

Yes. Just in the -- we compared the first quarter to the first quarter of last year, and we had $10 million more of production, well over $900 million in the first quarter of 2026. Our payoff activity was heightened. It went from about $480 million to about $630 million. It was up $150 million. And so we felt that, and we felt that on top of the loan sale and last year, we grew modestly. We grew about $90 million, $95 million in the first quarter. It was about 4.5%, maybe 4.4%.

To notwithstanding those payoffs, our activity was steady. It was good. It was -- HELOC key loan was a bright spot, I would say, small business, business banking and still trying to get the commercial real estate construction portfolio to overtake the payoffs and some of the originations there. So we just -- we feel the year sets up pretty well, notwithstanding $150 million more of payoffs from a year ago.

And I would say that in the ensuing quarters since the first quarter of last year, the payoffs went up every single quarter. We feel with rates maybe cresting here, perhaps that -- and moving up that, that activity has slowed somewhat here in the last 30 days or so or maybe it's coming at a natural end because we don't have that many big names left to pay off.

So that's the calculus, and we do feel good about the level of activity and that we can hit the guidance that we've given historically of mid-single loan growth.

And our next question comes from the line of Charlie Driscoll with KBW.

This is Charlie on for Kelly Motta. Just one clarifying question on the margin. I appreciate the comments on the 3 to 5 bps of expansion from here. But just drilling down on that exit margin, do you expect to kind of exit the year near 4% or a bit above that level?

If you could kind of help us with how you're thinking about some of the pieces here or what could cause you to kind of exceed that exit rate, reach the high end or low end of that guide?

Yes. Thanks for the question and the opportunity to clarify. We think the fourth quarter should be over 4%. But I'm really glad you asked because there's variability and the big variability, especially if you look over the last few years has been deposit behavior. I think we're in a really good spot now.

The loan-to-deposit ratio now 90.9%, so down to -- we really have some room here to bring down our deposits just because the balance sheet is so liquid. give us just more freedom to be a little more aggressive on deposit rates and bring that down.

So that's kind of -- that's the big variable factor in our NIM forecast. But yes, all else being equal, we expect to end the year a little over 4%.

Yes. I would just add that in bringing down the cost, we will balance that with -- we hang promos and we have nice -- we've gathered a lot of deposits, core deposits as well as interest-bearing. And it's been a terrific way to gain new checking accounts.

And the team has done a nice job. So it's more of a balance than you think, so that we'll pick our spots as we decrease rates, probably perhaps a little bit more on CDs. And by the way, we're going to test this and we're going to move the steering wheel, but we're just going to be cautious because household growth, the granularity of our depository is tied to -- when we get a customer, we're going to have to lend to them.

It's just a good thing when we get a new consumer customer. And our depository is about 50-50 consumer, which makes it very granular. And we sail through events like Silicon Valley 3 years ago. And you can see our string of -- we grew deposits pretty steadily over the last 3 years or so.

Great. I appreciate the commentary there. I guess kind of on that deposit gathering activity, you saw a nice quarter here. But do you expect that to keep up with the mid-single-digit loan growth you guys are getting? Just kind of trying to get the right side of the balance sheet here, seeing up.

Yes. Long term, yes. Maybe shorter term, we're going to test some things and just -- we'll test some things. We have a good team.

Great. And then last one for me, just on expenses. Wondering if this is a good core run rate to build off of in 2026. Maybe you could provide some color on what sort of investments you're making and where you're exercising more discipline on the expense front.

No, I think the guidance we gave, we talked about NIE covering the $74 million to $76 million range. I wish I could actually give you a tighter range, but I know it's a $2 million range, but those just vary a little bit quarter-to-quarter. We're just committed to keeping expenses under control. Mark, I don't know if there's anything you want to add.

No, we've been good stewards of expenses over the years, and we like efficiency ratios that are less than 55%. And we just need to keep -- we've been pretty good at operating leverage through the years. And we just -- as we scale the bank, we have to stay true to that culture of -- and at the same time, we're getting stretched on expenses and talent. We have to find the right mix and really have lots of good discussions just like other management teams.

And our next question comes from the line of Karl Shepherd with RBC.

Can you guys hear me?

Yes.

Okay. Great. Jim, just one quick one on the NIM guidance. I think you said you moved from 2 cuts to 1 cut. Is that later in the year? Or is it earlier and might have a little bit of impact?

I think it's a little later in the year, like, late summer. I can verify that. It's an interesting dynamic I kind of -- again, I'm glad you asked because if there is one cut, it kind of -- if the rate environment is down a little bit, it gives us an opportunity to be -- to take deposit costs down even further. Generally, we say we're asset-sensitive balance sheet, but if the activity is on the deposit side, if it's a falling rate environment, it gives us a little more opportunity on the deposit side than it cost us in the downdraft in the variable rate loan portfolio.

So when we look ahead on one cut versus -- this is the question you asked, I'm just kind of thinking about as you asked the question, one cut versus 0 cuts, the delta isn't all that big. The one cut in our base case forecast is, as I said, late summer, not September actually.

So I hope that helps a little bit. We mentioned in my prepared remarks is that the base case last a budget for us was based on a purchased vendor that most banks use, and that was 4 cuts for the year, it's quite dramatically different now.

Okay. That's helpful. And then I wanted to pick up a little bit on the credit discussion. I know the provision will kind of be an output of what's sitting there at 6/30. But if I put all your comments together and the specific reserves for the credits that were resolved after quarter end, it seems like there's room for the provision maybe to drift back down a little bit. I think you're kind of signaling with no stress in the portfolio, a stable reserve. Is that a fair way for us to think about this?

I think so, yes.

And our next question comes from the line of Manuel Navas with Piper Sandler.

Can you speak a little bit more on the buyback pace? And is it impacted at all with any potential shifts in loan growth? I mean, I know you reiterated the guide, but if loan growth comes in at different parts of the range, would you buy back more? Is that part of the calculus?

Great question, Manuel. It's not really driven. It's not leveraged by the loan growth. We have plenty of capital to capitalize the loan growth. In other words, I don't think that if we grew [indiscernible] we'd be pushing the capital ratios into any kind of place where we'd be concerned. It's really more driven by just a dollar amount of capital generation.

We're kind of operating under the Fed guidance that says you allow to buy back -- return to shareholders between the dividend and then the buyback up to the dollar amount of capital generation in any given quarter, but not beyond that. And that's kind of what we've been operating at.

There are -- if you -- there are peers that do go beyond that, but that requires a full loan application with the Fed, we just haven't done that. So that's what we're doing. So last quarter, there's a chart in the supplement that we published on the Investor Relations portion of our website, the PowerPoint that shows we returned about 95%, close to 100%.

I think we came within $1.7 million so no, it's not so much loan growth. It's a fair question because we always say the primary use of capital is organic loan growth and capitalizing as we go.

So that's -- I guess you're coming from, but that's really driven by just the dollar amount of capital generation the cap.

Okay. Shifting over to loan growth for a moment. Any shift to the mix or just because the production is pretty solid, you're going to keep the same mix. And one specific, could you comment a little bit on the equipment finance growth? Are we approaching a cap? Or does that still have a year or so left to run? That was kind of the nice positive area of growth for the quarter.

Yes, the mix is probably 1% more commercial, probably 61-39 now commercial consumer mix. So that's changed. And obviously, to move it 1% or so even in 2 quarters, takes a lot more production on one side than the other. So we are becoming more commercial.

We actually talked about that this morning. And because we love the consumer households and the deposits and the granularity of that, and we just want to have good balance there. And then -- so great question. And then on the equipment finance side, I think there's room to run there for another year or so.

And knock on wood, it's really met our credit projections and that portfolio mature here, begin to mature here in the next year or so, and we'll see how those credit costs come through and how that matures. But I -- we feel good about that business.

The other thing the team has been very nimble and creative is we had a goal to kind of -- once we got that up and running to really switch that to an in-market true leasing business, and they're already pivoting there in a meaningful way that will result in a good portion of that business being in-market leases to our commercial clients.

And so it's just a talented team, and we are we're just delighted with how that has unfolded. So hopeful that that's helpful, Manuel.

And our next question comes from the line of Matthew Breese with Stephens.

A few questions. First one is towards the back of your presentation, it looks like you have $35 million in maturing office next quarter. You have $17 million in the third quarter and $13 million in the fourth quarter. Given we're not totally out of the woods on office yet. Just curious, have you looked at the maturities and any sort of credit worries as we come upon those dates?

Yes. We've looked at it going out about through the end of next year, actually. Brian, do you want to comment on that?

Yes, I'll just jump in. And I guess we continue to actively manage the portfolio. We have seen exposures continue to trend lower. And my comment on the maturities is part of that is also managed purposely through shortening maturities and extending into a certain period in order to facilitate an exit or a refinance or a sale of a property.

One of our biggest successes in 2025 was just that where we had a large reduction in the second half of the year through an asset sale as a result of that. So we evaluate maturity by maturity throughout the whole portfolio and focus over the next 24 months and are actively pursuing exit that makes sense for the portfolio.

Is that helpful?

Yes. Okay. Jim, it looks like the cash position is up a little bit, maybe excess $100 million, $150 million, kind of the near-term deployment for that?

Well, a couple of things. The cash position is up in part because of that the execution of the sale of the loans that are held for sale. So we see that cash we pay down and Mike mentioned this, we pay down some FHLB borrowing, bought some securities and still have -- with the loan book shrinking a little bit in the first quarter, we had an excess cash position.

So we can foresee the pattern of some of our depositors, some of our large deposits that are in the public funds category. A lot of those come out in the second quarter, so we make sure we have cash around for that. So we don't invest that money and find ourselves having to borrow money because we have those outflows.

So knowing that those are coming, we're holding some cash for that and holding the cash for excess loan growth. But to the extent it doesn't materialize, we de would be buying more securities. We're buying now expand the securities portfolio a little bit. That's kind of actually one of the issues at the moment.

Okay. And then I did want to touch on some of the categories outside of equipment finance. So traditional C&I ex equipment has been down for 3 quarters. It looks like commercial real estate has been down for 2 quarters, and we talked about prepays and payoffs and things like that. But for the larger segments, C&I commercial real estate, when do you start to -- when do you think we'll start to see some net growth there? Is that a 2Q event?

Yes, it will be definitely this year. We've added some business bankers. We're seeing -- and that's really more on the small end, more granular end. The payoffs are happening on a little larger credits. And so that's kind of a tough swap because you got to do 4 loans for every one that's paying off.

I like that long term, but the team -- we've added a lot of business bankers over the last few years. They seem very productive. We actually, in the C&I segment, on the smaller end, small business and business banking actually grew that in the first quarter, $30 million or $40 million and really haven't done that on that bottom $600 million, $700 million, $800 million in that space.

So that's good news, and we feel good about that. And that's obviously granular and comes with more depository. But we still have had some payment headwinds, no doubt. We do think we can grow there. We will grow it.

Last one is just between Ohio and Pennsylvania, there's just a ton of activity between chip manufacturing, AI data centers, and power plant build-out stuff. I was hoping for your comments around all that. And then how much of it can you say has had or potentially could have an impact on the pipeline or loan growth to date?

It might already be having an impact. I mean we have really probably our deepest pipeline after Cincinnati had a great first quarter, our deepest pipeline is probably in our $4.5 billion community PA market, particularly on the small business up through the business banking segment.

And I think that I was with a contractor for dinner on Monday night and who's doing a lot of power generation, gas-powered, one in Homer City, it's having a real impact. And it's good to see.

But I also think that, I mean, Ohio has really grown in the last few years and helped really led out in growth. So I expect that to continue. That's everything together. And Community PA always generated a lot of deposits. And now it looks like they're setting up for a good year on HELOC key loan and small business and business banking.

So that's -- it's -- we like the business. It's fun, and we feel like we make a difference but it looks good.

And our next question comes from the line of Daniel Cardenas with Brean Capital.

Just a couple of questions. Have you noticed any change in customer sentiment just given the current economic environment right now?

It might be too early to tell. I did notice that our interchange income on debit card was off a couple of hundred thousand dollars.

With the holidays in the fourth quarter, too.

Yes. But -- and activity and swipes even, but I -- that's probably the first quarter, too. But yes, we've been and I think we've shared this with you, Dan and others. We've been watching our consumer books like a hawk.

Our HELOC key loan, our mortgage and our indirect auto, and we're just -- we're seeing some pretty solid performance. So it kind of belies gas that I just filled up was in Pennsylvania is high at $4.47 a gallon. So we're just -- we're watching that closely.

Yes. I just -- I'd confirm that, Mike. And I mean that was one of the positives in the first quarter as consumer delinquency trends improved and was somewhat of an offset, helped our overall total delinquency level for the period.

But we're monitoring everything that's touching energy and potential inflation impacts as we go through the quarter.

And Dan, I would add, we have probably -- it's not like we have 15,000 or 20,000 customers. We have -- plus indirect auto, we have 300,000 customers of the bank. So we have a lot of clients. So it's a pretty good sample set -- sample size.

All right. And then just jumping quickly back to credit. Within your level of nonperformers, is there any geographic concentration in any one particular market where perhaps some of these credits are housed in versus others?

No, nothing from a geographic standpoint as you look through it, it's been isolated credit events that have driven the overall dollar amount of NPLs. The one point I'd add is Mike made a comment in his opening statement. It's just important to distinguish between the guaranteed and unguaranteed exposure within the SBA portfolio.

Those are all very granular. But from a concentration standpoint, as you asked, there are $28 million of guaranteed NPLs in that portfolio.

All right. And then just one quick modeling question on the tax rate. Is a 20% tax rate kind of a good run rate for you guys?

Yes, very close. I think we are at 20.6%. Yes, 20.26% for the first quarter.

And we have no additional questions at this time. So I will now turn the conference back over to Mr. Mike Price for closing remarks.

Thank you for your interest in our company. I did want to mention, lastly and importantly, after 37 years at our company, Norm Montgomery, our Chief Information Officer, is retiring, and we will miss him.

And we have hired Ryan Gorney to replace Norm and have a talented team at our company and excited for Norm and his retirement, and welcome to Ryan Gorney.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the First Commonwealth Financial Corporation Fourth Quarter 2025 Earnings Release Conference Call. [Operator Instructions] Thank you.

I'd now like to turn the call over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead.

Thank you, Jordan, and good afternoon, everyone. Thanks for joining us today to discuss First Commonwealth Financial Corporation's fourth quarter financial results. Participating on today's call will be Mike Price, President and CEO; and Jim Reske, Chief Financial Officer; Jane Grebenc, Bank President and Chief Revenue Officer; Brian Sohocki, Chief Credit Officer; and Mike McCuen, Chief Lending Officer.

As a reminder, a copy of yesterday's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page. We have also included a slide presentation on our Investor Relations website with supplemental information that will be referenced during today's call.

Before we begin, I need to caution listeners that this call will contain forward-looking statements. Please refer to our forward-looking statements disclaimer on Page 3 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.

Today's call will also include non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to and not as an alternative for our reported results prepared in accordance with GAAP. A reconciliation of these measures can be found in the appendix of today's slide presentation.

With that, I will turn the call over to Mike.

Thank you, Ryan, and welcome, everyone. Headline performance numbers for the fourth quarter include core EPS of $0.43 per share, which beat consensus earnings estimates alongside a net interest margin that expanded to 3.98% and a core ROA of 1.45% and a core efficiency ratio of 52.8%.

During the fourth quarter, average deposits and total loans grew modestly at 2.8% and 1.2%, respectively, due to seasonal headwinds and several larger commercial loan payoffs. Net interest income grew as the margin expanded on the heels of healthy new commercial loan volume at good rates.

Deposit costs fell 1 basis point to 1.83%. Fee income was flat as gains in SBA were offset by seasonal declines in wealth and mortgage. Our fee income at 18% of total revenue compares favorably to peers, and we have a concerted effort and long-term focus on growing fee income through our regional banking model. Wages and incentives remain pressured due to market conditions.

The provision for credit losses decreased by $4.3 million compared to last quarter to $7 million. The elevated prior quarter provision was reflective of the continued resolution of a previously disclosed dealer floor plan credit. The credit required no further reserve in the fourth quarter, while NPLs increased 4 basis points to 94 basis points, versus the prior quarter, we are appropriately reserved for these loans and do not experience a provision impact like the third quarter.

Non-performing loans include both the unguaranteed portion of SBA loans and the government guaranteed portion of any SBA loan, which is owned by the bank. As of December 31, 2025, $98 million of nonperforming loans included $39.2 million of total SBA loans, of which $31.2 million was government guaranteed. As a result of our -- our 94 basis points of NPLs, 32 basis points is guaranteed.

In the fourth quarter, we repurchased $23.1 million of our stock or 1.4 million shares at $15.94 per share. We repurchased 2.1 million shares in total in 2025, which incidentally is roughly 2/3 of the 3 million shares we issued in the Center Bank acquisition.

For the year, core EPS of $1.53 compares favorably to the consensus earnings estimates of $1.40 that was in place in December of 2024 as well as the highest revised midyear consensus estimate of $1.54. Net interest income of $427.5 million in 2025 was up at an impressive $47.2 million year-over-year, while net interest income benefited in general from higher for longer interest rates, more specifically, net interest income was driven by better loan yields, good loan volumes, lower deposit costs and a better commercial business mix. All this mix together drove the NIM markedly higher over last year.

Loan growth was 8.2% annualized and 5% without the Center Bank acquisition as commercial banking, equipment finance and indirect led the way. Average deposit growth of 6.1% for the year largely kept pace with loan growth and was approximately 4.2% without Center Bank.

Here, money market and CDs accounted for over $534 million in growth, while noninterest-bearing DDA added another $116 million to a now $10.3 billion depository. For the year, noninterest income fell only $3 million year-over-year despite another $6.3 million in Durbin amendment debit card headwinds that resulted from crossing $10 billion in assets.

In short, our fee businesses are filling the gap. In sum, 2025 was a year in which strong growth in spread and fee income more than offset the impact of higher expenses and lost Durbin interchange income, resulting in year-over-year improvements in PPNR, core EPS, core ROA and efficiency. During the year, and by the way, the team completed the acquisition of Center Bank and grew deposits 3% annually for the year.

Before I turn the call over to Jim, I wanted to take a moment to recognize Jane Grebenc, who will be retiring at the end of March. Jane has been a friend and a mentor to me and many other leaders throughout her distinguished career, and she has left an indelible mark on First Commonwealth. Jane's dedication, leadership and wisdom have played a pivotal role in the strategic transformation that have helped position First Commonwealth as a top quartile performer. Thank you, Jane.

And with that, I will turn it over to Jim Reske, our CFO.

Thanks, Mike. Core operating results for the fourth quarter of 2025 continued the momentum of the third quarter. Core ROA improved 11 basis points to 1.45%. The core ROTCE improved 93 basis points to 15.83%. Spread income increased $2.1 million from the previous quarter, primarily due to a 6 basis point increase in the net interest margin. The yield on earning assets increased 3 basis points, while the cost of funds decreased 3 basis points.

Looking ahead, our NIM guidance is little changed from last quarter, a near-term dip as our margin through our variable rate loans, fully reflects fourth quarter rate cuts followed by gradual improvement each quarter ending the year 2026 at around 4%.

At year-end, we designated a portfolio of approximately $225 million in commercial loans as held for sale. These loans represent a pool of commercial loans that were originated primarily in our Philadelphia MSA, which the bank had previously decided to exit in order to focus the bank's resources on customers in other areas.

Subsequent to the acquisition and communication to borrowers, a bank approached us with an offer to purchase the portfolio. Since discussions regarding a sale are ongoing, we move the portfolio to held for sale as of year-end. The ongoing effect in 2026, should the sale be consummated, would be to reinvest the cash proceeds from the sale of $225 million in loans into lower yielding securities at a rate differential of approximately 1.5%. The sale of consummated will also have the ancillary benefits of improving our liquidity and our capital ratios.

As Mike mentioned, total average deposits increased $72 million or 2.8% annualized over last quarter. Seasonal outflows in public funds were more than offset by growth in consumer checking and time deposits along with growth in small business and corporate money market costs.

Core noninterest income of $24.3 million decreased $200,000 from the previous quarter. SBA gain on sale income increased by $800,000, but this was more than offset by a $700,000 decrease in wealth advisory fees and a $200,000 decrease in swap fees.

In 2026, we expect noninterest income to be relatively flat over 2025. So longer term, as Mike mentioned, we would expect our regional model to improve fee income results.

Core noninterest expense of $74.3 million increased $1.7 million from the previous quarter, mostly due to increases in salaries and benefits as we filled a number of open positions in the fourth quarter. The bank, however, was able to achieve positive operating leverage over last quarter. The core efficiency ratio remained below [ 53% ], and we expect to be able to limit operating cost increases to approximately 3% and year-over-year looking ahead.

Mike mentioned our buyback activity in the fourth quarter. I would add that remaining repurchase capacity under the current program was $22.7 million as of December 31, 2025. On top of that, an additional $25 million of share repurchase authority was authorized by our Board yesterday. Of course, we only repurchased shares using excess capital generation in any given quarter, which effectively caps repurchase activity at approximately $25 million to $30 million per quarter.

And with that, we'll take any questions you may have.

[Operator Instructions] Your first question comes from the line of Daniel Tamayo from Raymond James.

Congratulations to Jane on your retirement. I guess, first on the credit side. I apologize, I don't think I heard anything, but if I did, I apologize if I missed it, but just curious, you did Mike touch on the impact of the guaranteed and the NPLs. But just thoughts on where the net charge-offs and provision might go in 2026. And then if you have any update on the floor plan loan that had been giving you guys some issues where that stands at the end of the quarter as well.

Yes. The charge-off guidance we normally give is 25 to 30 basis points. And the floor plan credit, we have maybe $1.5 million left to resolve. Is that right, Brian?

Yes, I'll jump in there. Thanks, Mike. First, I'll just start in the fourth quarter for the dealer floor plan loan, we ended the year with a $2.5 million outstanding balance. So we're nearing resolution with just a number of cars left in the liquidation process. There was no additional reserve as noted previously, and we have just a small release about $80,000 in the quarter.

Since you mentioned the net charge-offs, there was a $2.1 million charge in the fourth quarter related to the dealer floor plan loan and within that 47 basis points, that was reported on an annualized basis. And I concur with Mike's guidance on the forecast moving forward.

Okay. Great. And as it relates to the provision or reserves with the reserves coming out over the last couple of quarters, just feel like a pretty good run rate for stability, just over 130 or do you think that still can trickle down?

Yes. I wouldn't say there's any change in our philosophy credit costs remain manageable. Reserve levels remained strong, consistent with peers slightly ahead in some cases at the 132, where we've seen emerging stress, we've already responded, whether that's through the specific reserves in prior quarters. We've kept our qualitative overlays in place. And overall, comfortable that the reserves just appropriate, reflecting where the risk is in the portfolio.

Okay. And maybe just changing gears here, but just as it relates to the loan sale that you're expecting here probably near term. Is that something you could see happening more in 2026 in terms of additional loans being moved off the balance sheet? Or is this kind of a one-off situation that you don't see recurring?

It's more of a one-off. We we really withdrew from that market, our branches and kind of our C&I commercial banking depository ground game. About 2 years ago, we sent customers letter, and this is kind of really one of the last act of the play. Mike McCuen is our Chief Banking Officer. He's on the line. Do you want to add anything for Daniel, Michael?

No, I think you covered it, Mike, taking those resources that Jim alluded to investing in the other markets that we have retail locations makes all the sense in the world for our business model.

Okay. Terrific. Appreciate it.

Thank you.

Your next question comes from the line of Karl Shepard from RBC Capital Markets.

Congrats, Jane. I guess I wanted to start on your loan growth expectations. It looks like you had pretty good production in some of the segments maybe you're targeting and then you had the payoff headwind. So I guess just kind of what's the buildup for loan growth in '26 and just kind of just talk about maybe health of the pipelines and what you're seeing in your market?

Yes. I think last year, we grew 8%, 5% without -- 5% without Center Bank. And I would expect that kind of loan growth to continue, although we really had elevated payoffs, probably in excess of over $200 million from the second half of the year to the first half of the year. So that created some pulp-able headwinds.

We feel like our business banking Mortgage could have a good year, although we'll sell that. And really, we just feel good about our commercial pipeline, commercial real estate and elsewhere. We had really led our construction portfolio a trite and we feel that is going to build and add probably $20-plus million of drawdowns a month.

We feel like we're well positioned typically, the first and the fourth quarter are a little slower for us than the second or third, and that's where we get most of our loan growth in a given year. But the payoffs are indeed a little elevated. And -- but I suspect just like we were here last year, I think we probably guided to maybe 5% to 7%, and we've got to 5%. And that's again, without the center bank.

And I think we're well positioned, and our teams are maturing, and we I think we get a little better every year.

Okay. And then I guess maybe one for Jim. Just on the buyback quite a bit of authorization out there now and stock is a little bit higher than maybe where it was in 4Q when you're active. Just how do you want us to think about that?

Yes. It's really more about capital deployment right now. There is a price sensitivity to it. We always operate on a grid so that we can -- and we use the same words every time. We want to keep a little bit of dry powder available if prices dip that's kind of why if you look back in the calendar year 2025, for a good part of the year, we were buying back anything and then the later part of the year, we stepped up the buybacks.

But right now, the capital ratio is we're just generating so much capital to easily self-capitalize loan growth at the level we wanted. So our future guidance is mid-single digits. We're generating far more capital than it takes to capitalize that kind of loan growth.

And so, we don't want to -- and I'll repeat [indiscernible] said this thing before, but we don't want to accelerate loan growth beyond what we think we can organically do. We do it at the right pace for our region, for our credit appetite, for our demographics, based on the rate environment. For all those reasons, the loan growth rate is where we wanted to be. And then we still generate a ton of capital.

And so we have to do something with that other than just like the capital ratio has got to [indiscernible] up, up. So that's why we are doing the buyback and we'll continue to do more this year.

Your next question comes from the line of Kelly Motta from KBW.

Congrats, Jane, on your retirement. Just to start off, I'd love to kick it off on margin. It came in quite a bit above where I had been expecting. You guys noted you had some payoffs. I'm just wondering if there was any loan fees in there or if that's a good run rate to go off of. And as we look ahead, I appreciate the commentary about being reinvestment from the HFS portfolio when that closes, but how we should be thinking about these dynamics here?

Yes, Kelly, it's Jim. Great question. Thanks. Yes, we were really pleased with the margin performance this quarter as well. We recall last quarter, we were giving guidance that we expected a dip. And first thought when we saw that margin coming in so strongly was is the dip actually happen the way we thought it was going to happen and it did. It did.

So the rate cuts hit the variable rate loan portfolio, the sulfur-based loan portfolio took that down. But you nailed it. We had some other things that offset that. And -- the part you [indiscernible] we had some payoffs. We had some paydowns in the loans that were previously on nonaccrual status. And when they did that some of the previously -- we recognize the interest on those loans that have been on that accrual.

And so that -- and some other factors together, we work together to offset that hit we took in the variable growth portfolio and kept the margin performance really strong in the fourth quarter. But looking ahead, we think that -- there a couple of times here in the fourth quarter in December. That's not fully reflected yet. We're going to feel that in the variable -- in the solar-based loan portfolio, the variable portfolio. So that's going to hit in the first quarter, dip at that a little bit, but then all the other factors that have been working to keep it going strongly, continued upward repricing to fixed rate loans, the macro swaps coming off of here, the remainder of that in 2026, including a big chunk in May, that will really help, but keep the margin up.

And so that's why we kind of have this forecast of drifting upward to around the 4% level in 2026. So I hope that gives you some additional.

That's super helpful. Maybe turning to the expenses. Q4 it was up about $1.5 million, I think. Just wondering if that was just kind of year-end true-ups. And then as we think ahead, how you guys are -- it seems like you're calling for pretty strong margin here, solid loan growth. So as we look ahead, your expectation for expenses, any places you're hiring -- and how we should think about that run rate?

Just the efficiency was certainly on the back of the revenue side. We're normally very, very good at the expense side in maintaining operating leverage and we have a nice little chart in our investor deck that shows that we're pretty good at putting our shoulder to the wheel. And what we'll need to do that in hustle this year, watch our FTE count closely.

That being said, we've invested pretty heavily in our Commercial Bank, our Equipment Finance Group, and we expect more production there, and we expect for that those investments to pay off for us. But we can do a little better job on the expense side as well. And we've invested pretty heavily, quite frankly, the last 2 years. I think -- yes, $25 million or so up over 2 years. And we were a little higher than we thought we would be, but that's just a matter of discipline and we're pretty disciplined group.

And Kelly, you mentioned there were true-ups. There were a couple of things that were one-off that has in the fourth quarter that are not part of our thinking going forward. So we have some contract terminations and some other things in addition to what we said in our prepared remarks about filling open positions to Mike talked about, about the staff increases. So a couple of those one-offs are not in our future forecast for operating expense going forward.

Your next question comes from the line of Matthew Breese from Stephens Inc.

I had a couple of questions. Maybe first starting with the NIM. It sounds like the guidance is calling for around a 4% NIM by the end of the year. And I'm usually just a bit skeptical, the sustainability of 4% NIMs. And one thing we've been hearing a lot about this quarter is spread compression, both on the C&I and CRE front.

And so I guess I had a 2-part question, which is, one, how does the pipeline yield look? And what are you getting for spreads on new C&I and commercial real estate business? And then maybe just touch on expectations around deposit costs for 2026?

Yes. I'll hand it over to Mike McCuen in a minute for the loan expectations that -- I mean, when I look at our commercial variable and the new stuff we're putting on, it's 7.3% in the last quarter and commercial fixed is in the high 60s, even our indirect is in the high 60s.

So -- and that's like kind of at that 2.5-year point on the shoulder of the yield curve, and we like that. And so I don't know, replacement rates still look good. Even with rates down this past quarter, our commercial variable the replacement rate was low, but nevertheless, it was still positive.

Yes. I think just I'll interject quickly, and then Mike McCuen turn it over to you for just thoughts on the market, the spread, the spread compression I'll give that kind of real-time color.

But -- in the fourth quarter, we didn't see a real differential in the rates the work for the variable rate portfolio, the ones that are coming on, coming off. So that said from -- in the aggregate, there wasn't an evidence of a lot of spread compression in that portfolio. As Mike was talking about is all the fixed rate volumes still nicely repricing upward.

And because those are all repricing towards the middle of the curve, if the yield curve inflects a little bit, it would drop at the short end, we won't expect that dynamic a whole lot. And I think now we talked about that before. So -- but that's just a [indiscernible] portfolio. The ones that came on, came off, it was like a 1 basis point differential in the fourth quarter. So not a lot of evidence on that macro level of spread compression, but I'll turn it over to Mike to [indiscernible].

Yes, just to answer specifically on the segments, I would start with our business lending to the family-owned owner-operated business, we put a real focus on that about a year ago. And we're seeing healthy growth in that segment. I would say that's a prime, the prime [indiscernible] space business. I don't see that changing from a spread perspective.

Secondly, the Equipment Finance Group they're doing mostly fixed rate loans. Their yields are holding up pretty well. And then thirdly, I would say the commercial real estate business, that's a little trickier because as probably you heard from others, the agency markets, the insurance markets are very aggressive these days.

We have a pretty healthy pipeline and we have a number of construction loans that are converting to permanent markets. The balancing act is those spreads are compressed, and we're trying to maintain our discipline around the real estate business, not just from a rate perspective, but also from a structure, term, recourse, all those things that go into those decisions.

As our construction loans roll off, we have every chance to match those rates. We, in many cases, choose not to, and let those move on and then grow the construction loan portfolio, which, by the way, is up around $120 million over the last year, and that will lead to future funding. So that's a quick snapshot of why we're a little more comfortable based on the segments that we play in versus large corporate, investment grade, things like that.

Got it. Okay. So it still sounds like you're putting on loans accretive to where the average yield is and I'm assuming there's still some room to reprice deposits down. I guess, Jim, as we look to 4Q '26 and beyond, do you feel like there is momentum to carry the NIM above 4% as we get into 2027 with all else equal?

Yes. But I'll borrow the phrase everyone says that the crystal ball gets fuzzy that are out. And we usually don't give guidance that far to that anyway. But I know we've talked about this before, if we look ahead in the projection. And again, it's really funny. So I'll hedge again.

The NIM would hover in the low 4s in 2027, the current projection. So it depends on lots of factors and lots of things could change by between here and then. By then our Microsoft be fully off. And so we'll be the benefit of that. We think there's room to drop the deposit rates a little more. We've been pretty thoughtful about that, watching the ratio in the market that have been around us.

We -- in 2025, that was a big issue. We thought it is very difficult to fund the loan growth with deposit growth and drop rates at the same time and yet we did it very successfully in 2025. So I kind of think there's -- we think we can continue that in 2026 as well settle up the market as well.

Got it. Okay. And then last one before I'll hop back in the queue. Actually like you laid a few breadcrumbs on the stock buyback front, at least in the very near term, in the next 1 or 2 quarters, should we be penciling in $25 million, $30 million in buybacks per quarter?

It's hard for me to definitively say even the next few quarters because it is -- it's not entirely dependent on the stock price, but it's sensitive to the stock price. So if the price shoots up, we'll slow the buyback down. And it would not all be in the first half. If the price stays where [indiscernible] lower than a lot of it will be in the first half.

Even then, though, it may not all be in the first half. It will be -- we intend to use the authority and be fairly aggressive with it overall, but there's still price sensitivity to it.

[Operator Instructions] Your next question comes from the line of Manuel Navas from Piper Sandler.

On the NIM, how big of a dip are we looking at this first quarter. Did you discuss how much the -- I might have missed it, how much the NPLs benefited the NIM this quarter, like a dollar amount or basis points in and in -- just kind of quantify what's going to come out of the NIM next quarter?

Yes. The NPLs were all hold about 3 basis points of total impact is a little bit bigger. I just the impact on that 1 portfolio because we spent a lot of time looking at the [indiscernible] portfolio in the fourth quarter to say, why didn't it the yield of that portfolio dropped the way we thought it was going to drop.

And the answer is what I said before, it did drop for the effect on silver, but it was offset, I think, like these nonaccruals and a couple of other factors, too. But the overall effect of the total NIM for the nonaccruals coming back was about 3 basis points for the fourth quarter. [indiscernible] what's the other part of your question?

And then from there, how big of a dip [indiscernible] in the first quarter?

Yes. The amount that dip we think is anywhere from 5 to 10 , I'm hedging that way because we always had our forecast is they're always within 5 or 10. I think -- yes, on the model going forward. And then it drifts upward around 5 basis points a quarter, it ends up not quite 5 basis a quarter, but it's just upward enough to end the year at around 4%.

And as those loans are sold your loan-to-deposit ratio ex those loans is like in the low 90s, you could be a little bit more aggressive on deposits, right?

Yes and yes. Thank you. [indiscernible] in that a big part of our thinking actually. We're happy to see that on to deposit ratio. And then these were securities we buy will be current rate. They won't be underwater. So they're perfectly available to sell for the liquidity to fund loan growth we wanted to course have ample borrowing capacity. So it's not -- liquidity is not an issue, but it does give us a little more liquidity, a little more dry powder to [indiscernible] future loan growth and then also not be so aggressive at the margin on deposit rates to fund the loan growth.

We're probably the...

Are there...

No, we're probably 2/3 of our peers in terms of the deposit beta over the last year in terms of cost of deposits. So if they're down 33, we're down about 22. And we've done that on purpose, and we've really probably kept them a little higher than we could because we wanted the growth, and we didn't want the borrowings.

And so we achieved both, and that's kind of the balance. But I think there's probably, in the long run, the trades go down more downward opportunities. But we'll keep trying to grow the deposits. The other thing is it's -- it also has to be a game of acquiring new accounts, noninterest-bearing, new checking, and we're trying to -- and we have a sales force that under Jane's leadership and Mike's leadership has really delivered that for us and we'll continue to beat that one.

Are there other impacts from the sale of these loans across OpEx across you're more focused away from the filling area, are there other impacts in the loan loss reserve. Anything that -- in those areas that we can start to plan for now?

It financially answer the impacts of loan loss reserve the mark all that was felt in the fourth quarter. That's all reflected in the financial already. Just in terms of operational expenses, not much. We've already, we have a couple of physical locations there. We exited a while ago. So there's nothing further from a facilities expense standpoint to come. But it does provide management bandwidth to refocus on other areas and Mike McCuen, I don't know if you want to comment on that more, that's more of how we run the business in.

No, we -- I mean, Philadelphia is a great market. It's also very greatly competitive, and we would not be -- the investment to really compete the way we would like to be too great, and that money can be used in other markets for producers indiscernible] the physical locations where we already have really good presence, and we want to grow those. So it's just a trade-off we made, and I think we'll see more profitable growth in some of those markets than we otherwise would. But nothing again Philadelphia. It's a great market. It's just there's a lot of competitors there.

And Manuel....

Sorry. Go ahead. Go ahead.

Yes. Just the financial effect, these were already relationships so we were deciding to exit it was kind of a slow bleed on the loan growth. It was a net against other loan growth, and that will be relive now that we've moved them to helper sale.

I appreciate some of the extra commentary.

Your next question comes from the line of Matthew Breese from Stephens Inc.

Again, I just had one more, but I want to be cognizant of everybody. The securities book has been in this kind of 350 to 365 range. But yields have been down for the last couple of quarters. Jim, you had mentioned buying some at-the-market type securities with the portfolio. So I'm assuming that's like a 4.75 pickup.

And then so I was hoping for maybe securities yields outlook for the first quarter and then cash flow estimates for the year I would think at some point here, either late this year or next year, we start to see a more aggressive pickup in securities yields, but I was hoping for some help there.

Yes. No, it's a great point. The portfolio has a duration of between 4 and 5 years. So that -- right now, the philosophy is just replace the runoff. And the opportunities we get -- the number I gave a moment ago when I talked about reinvestment, the reinvestment of the HFS loans upon a sale if [indiscernible] into securities was assuming you repurchase rate about 4.5%. But you're right. We just look at the other day, we see some opportunities like in more in the high 4s. It depends to today, but I was using a 4.5% rate just as a rule of thumb right now, but you see some pickup set opportunities for some [indiscernible] investments that are more like 4.75 right now. So that will naturally allow these secure portfolio to drift up as well. It's -- we're not in the position holds in the balance sheet right now is not where we want it. And so we're not really expanding it. We're just replacing the [indiscernible]. Does that help?

Yes. Just curious, is that 4- to 5-year duration? Is that good to use for 2026? I haven't quite done the math out on what that means for quarterly cash flows, but.

Yes. And I don't have -- yes, I don't have any...

It could be lumpy sometimes.

Yes, yes. It can be. And obviously, a lot of those are mortgage-backed securities. So a couple of years ago, rates elaborations all extended. Can you see if I have the duration of securities portfolio right now. Right now, the duration of securities portfolio is actually only 4.28, 4.28 in the fourth quarter. So there should be some repricing opportunities that rolls over.

Okay.

That concludes the question-and-answer session. I will now turn the call back over to Mike Price, President and CEO, for closing remarks.

Thank you, as always, for your interest in our company. Great questions. I look forward to being with a number of you over the course of the next quarter and -- we're excited about the future of our company. We're excited to grow it, maintain operating leverage, add to our fee businesses. That's a big goal.

And our regional model, really delivered good, low-cost deposit growth in each of our markets, the fund. I think our -- we have enough diversity of lending businesses. I think we're less worried about growing the loans long term than funding them with low-cost core deposits. So thank you for your time today, and day 1.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may disconnect.

Thank you for standing by. My name is Danielle, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Commonwealth Financial Corporation Conference Call.

[Operator Instructions] I would now like to turn the call over to Ryan Thomas. Please go ahead.

Thank you, Danielle, and good afternoon, everyone. Thank you for joining us today to discuss First Commonwealth Financial Corporation's Third Quarter Financial Results. Participating on today's call will be Mike Price, President and CEO; Jim Reske, Chief Financial Officer; Jane Grebenc, Bank President and Chief Revenue Officer; Brian Sohocki, Chief Credit Officer; and Mike McCuen, Chief Lending Officer.

As a reminder, a copy of yesterday's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page. We have also included a slide presentation on our Investor Relations website with supplemental information that will be referenced during today's call.

Before we begin, I need to caution listeners that this call will contain forward-looking statements. Please refer to our forward-looking statements disclaimer on Page 3 of the slide presentation. For a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.

Today's call will also include non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. A reconciliation of these measures can be found in the appendix of today's slide presentation.

With that, I will turn the call over to Mike.

Thank you, Ryan. Our performance in the third quarter reflects broad-based momentum across our regions and lines of business. Key highlights include our return on assets improved to 1.34% and our core pretax, pre-provision ROA grew 10 basis points to 2.05%. Net interest margin expanded 9 basis points to 3.92% marking another quarter of improvement. Average deposits increased 4%, reflecting balanced growth across all of our geographies.

The cost of deposits declined 7 basis points to 1.84% underscoring effective pricing discipline, balanced with growth. Loans were up $137 million or 5.7% despite some payoff headwinds in commercial real estate. Loan growth saw meaningful contributions from equipment finance, commercial banking, indirect and home equity lending. Mortgage lending provided a headwind to balance sheet growth, although some of that runoff was by design, and the outlook for the business is improving.

Geographically, we had strong loan contributions from all markets in Ohio and Pennsylvania. Fee income remained resilient post Durbin, representing 18% of total revenue, a healthy quarter-over-quarter improvement in our wealth business was offset by slower gain on sale income. The third quarter efficiency ratio improved to 52.3% from 54.1% in the second quarter, reflecting good expense control.

Tangible book value grew 11.6% annualized on a linked-quarter basis and 9.1% year-over-year. On the credit side, core provision expense increased by $2.4 million quarter-over-quarter, reaching $11.3 million. As disclosed last quarter, we had a $31.9 million dealer floor plan customer who was out of trust. In the second quarter, we set aside $4.2 million in reserves for this relationship.

In the third quarter, a receiver was appointed to liquidate the collateral. The out of trust amount and related liquidation costs rose as the process evolved. During the third quarter, $5.5 million was charged off, an additional $3.1 million was added to reserves, resulting in a net provision impact for this relationship of $4.4 million in the third quarter.

This recent dealer floor plan fraud is isolated, and we expect it to be largely resolved by year-end. As of September 30, our floor plan exposures totaled $122 million across 21 traditional auto, and RV relationships with individual exposures ranging from $2 million to $18 million. Net charge-offs for the quarter were $12.2 million, primarily driven by the aforementioned $5.5 million dealer floor plan charge-off, and $2.8 million associated with the sale of 5 recently acquired Center Bank loans. This was an opportunistic sale utilizing the allocated loan mark from the acquisition with only $100,000 in provision expense. These 2 items accounted for 34 basis points of the quarter's 51 basis points of net charge-offs.

With the dealer floor plan relationship now at $16 million, nonperforming loans declined to 0.91% compared to 1.04% in the prior quarter. Our loan portfolio maintains negligible exposure to private credit funds, equipment finance firms, NDFIs or subprime lenders. Our recent Center Bank acquisition in Cincinnati is exceeding our customer retention expectations. We're grateful for the opportunity that acquisition has given us to accelerate the build out of that region.

On the digital front, we see good growth in services and high digital satisfaction and survey results. We continue to add customer-facing features to our platform and to improve productivity through the use of RPA and AI. We are excited about the outlook for First Commonwealth and the confluence of profitable growth, a regional focus leading to better low-cost deposit gathering and higher fee income, coupled with lower credit costs in the future.

With that, I'll turn it over to Jim Reske, our CFO.

Thanks, Mike. This quarter's core results show you what a little bit of NIM expansion and loan growth can do. Pretax pre-provision net revenue or PPNR, was up by $4.3 million over last quarter and nearly every financial metric improved. An increase in spread income overcame a modest decline in fee income, and a negligible increase in expenses, leading to improvements in core EPS, NIM, core ROA, core ROTCE and efficiency.

And even though provision and charge-offs were up, as Mike mentioned earlier, the key asset quality measures of nonperforming loans and classified loans improved from last quarter as well. So let's look at the details.

Spread income improved by $4.9 million over the last quarter on balanced loan and deposit growth. The net interest margin, or NIM, expanded by 9 basis points from 3.83% last quarter to 3.92% this quarter. The expansion was primarily driven by a 7 basis point decrease in the cost of deposits to 1.84%. Loan yields were largely flat this quarter as a 3 basis point decrease in purchase accounting marks was mostly made up for by a $25 million macro swap that matured on August 25 as well as the continued upward repricing of fixed rate loans.

Fourth quarter NIM will feel the full effect of the Fed September cut and potentially today as well as any further cuts during the quarter, offset by the continued upward repricing of fixed rate loans as well as the expiration of $75 million of macro swaps in the fourth quarter. Plus, there's usually a seasonal decline in deposits this time of the year, which we would need to replace with more expensive borrowings if the past predicts the future.

These factors could put some short-term downward pressure on the NIM in the fourth quarter. But we expect the NIM to recover in 2026, to roughly the level of the quarter just ended or about 3.9%, give or take 5 basis points as usual.

In 2026, the expiration of $175 million in macro swaps and the expected continued upward -- the continuation of upward fixed rate loan repricing helps to blunt the effect of falling short-term rates on loan yields. That projection assumes that we'll have two more rate cuts this quarter and 4 next year, resulting in a steepening yield curve. It also assumes that we continue our mid-single-digit loan and deposit growth, along with projected improvements in the deposit mix that we expect to bring the cost of deposits down in keeping with the projected decline in loan yields.

Core fee income, excluding securities gains, declined slightly from last quarter by $261,000. As Mike mentioned, we had lower gain on sale income, which was due to some REO gains in the second quarter and a $400,000 decrease in SBA gain on sale income. These decreases were somewhat offset by improved performance in our wealth division with trust up $0.5 million, and brokerage up $0.4 million from last quarter. We expect fee income to gradually increase in 2026.

Core noninterest expense, or NIE, excluding merger expense, was up slightly from last quarter by $350,000, largely due to salary expense, driven by increased incentive accruals based on recent performance and loan growth. Looking forward, we currently expect that expenses will grow by approximately 3% next year. We repurchased approximately 625,000 shares in the third quarter at an average price of $16.81. We had $20.7 million of share repurchase authorization remaining at quarter end, most of which we intend to execute on in the remainder of '25, assuming our share price remains close to current levels.

And with that, we'll take any questions you may have.

[Operator Instructions] Our first question is from Daniel Tamayo of Raymond James.

Maybe we just start on the credit side. It seems like the -- everything was kind of ring-fenced for the most part around the credits you referenced, the floor plan and the credits from center. Let me just make sure I have this right. So the floor plan relationship at quarter end is $16 million. You gave some info on the floor plan in total, $122 million, I think, Mike, but the floor plan relationship with the fraud is $16 million now. And then do you have the -- that's right, sorry.

That's correct. It went from $31.9 million to $16 million this past quarter. And $122 million overall floor plan exposure.

Okay. And the, I guess, remaining stress in that particular relationship you expect to be resolved in the fourth quarter? Or did I not hear that?

Yes, largely, we're just unwinding it.

Okay, okay. And what are reserves on that loan now, did you say?

4.4.

4.4, okay. And then the relationship from the Center acquisition that is driving these, what are the numbers on that? I don't know if I have those.

Yes, there were 5 recently acquired Center Bank loans, and we had an opportunity to sell those loans with a minimal hit. So I don't know if you want to expand upon that.

Yes, sure, Mike. This is Brian. There was 5 loans. They were all marked at our original time of acquisition. And as Mike mentioned, the charge-off of $2.8 million resulted in only provision of just over $100,000 for the quarter. They were PCD loans and the mark did not reduce the carrying value. So you see the charge-off, but you don't see the impact on provision.

Okay. And so those have been sold now and they're gone. Okay. All right. Great. And as it relates to the rest of the portfolio then, back in the kind of historical range for charge-offs? Or do you have any thoughts on where net charge-offs kind of or provision, whatever is easier discussed moves here?

Yes. No change from prior comments from a charge-off perspective, expectation is to operate in the mid- to high 20 basis point range. Last quarter, we said 25 to 30 basis points. And similarly, from a provision basis, that will grow with our loan growth, respectively.

Okay. All right. Terrific. And then I guess just finally on the credit side, and I'll step back here. The NPL is down at 92 basis points of loans. Does that feel like a really relatively comfortable level for you guys? Maybe that's the wrong way to phrase it. Is it -- do you expect kind of stability from there? Do you expect that number continues to come down?

We expect it to come down. And we have a nice slide in our deck, our supplementary deck that really shows historically where credit quality has been. And we really -- if you look on Page 10, bottom left quadrant there, we've just been really quite elevated from third quarter of last year, fourth quarter and first quarter of 2025, where we were between $61 million and $76 million of nonperforming assets.

I'll just add to Mike's comment that we'll have the tailwind of the majority of the dealer floor plan wind down in the fourth quarter and then kind of normalization of cleanup of the portfolio from there.

Our next question comes from Karl Shepard from RBC Capital Markets.

Just a quick one on the floor plan credit. I think you implied this, but as you see it today, no incremental provision from this in 4Q?

That's correct.

Okay. And then, Jim, I guess, on the margin, I was a little surprised to not see loan yields tick up a little bit higher. So I was hoping you could help us with what the fixed asset repricing was and then kind of what the accretion headwind was? And then just kind of how you see loan yields trending?

Yes. The fixed asset repricing was still 87 basis points. That is in the third quarter. That was a little bit down from the second quarter, but it's partly reflective of the rate cut. So still positive. That led to a positive replacement yields for the portfolio of about 25 basis points overall. The fixed rate production right now is running about 1/3 of the total production. The 87 basis points of positive on the fixed rate means the whole portfolio is repriced up at about 25 basis points, but the fixed rate repricing -- up repricing hopefully will persist even after there's a few more rate cuts.

Okay. And then since you gave it, I guess, I'll ask a little bit about the 2026 NIM expectations. In the past, we've talked about your models kind of shooting it up towards 4% or even higher for the margin. Is that still the case, and this is a reflection of maybe a little bit of conservatism or some expectation of competition, or just help us understand kind of -- you're pretty thoughtful about this stuff, but what do you see that gives you that 3.90% number?

Yes, I appreciate the question. Happy to tell you everything our thinking behind it and then you can make your own judgments as usual. I don't know if a sense of conservatism, but we do have more rate cuts in this projection that we had in the past. So there's 2 this year and then 4 by the end of next year. I would tell you that the pattern is not even in the projection we have, which we get from a third party that is probably the same third-party most banks use. If the rate cuts are quarter-by-quarter next year, 28, 18, 9 and 40. So they're kind of backloaded next quarter.

But all that does in the model in that kind of rate scenario is take the yield on loans overall down by 15 basis points. And then because rates are falling, we can take the cost of deposits down by about the same amount, 15 basis points, and that ends up being a picture of NIM stability.

So the numbers that we're pushing 4% probably just had a slightly higher rate forecast than we have this quarter. The other thing I just would note, it's not a parallel yield curve shift. It's a steepening curve, which is generally -- that's good for banks. So that helps a little bit. It helps us on the short end. We feel the pay in short end of our loans that are linked to the short-term rates. So we are able to bring the deposit costs down. And if in a mid- to long-end part of the curve stays up or goes up a bit, that helps with the fixed asset repricing. All that's going into the mix, and it's ended up looking pretty stable from here.

Our next question comes from Charlie Driscoll from KBW.

This is Charlie on for Kelly. With a lot of the NIM expansion driven by the deposit repricing this quarter and then expecting basic cuts to increase here. Can you kind of flesh out some of the deposit repricing dynamics going forward? Maybe just dive into the drivers behind like the near-term compression and then a little bit of the neutrality from there?

Yes. I'll just give you a little color on the deposits. This is Jim. A little color on the deposits and what's happening in the quarter. We're really happy to see the deposit balances growing. That was really -- and we kept saying this using this term, that was a nice edge this year to be able to grow deposit balances and simply the cost of deposits down, but we've been able to do that.

What's happened is that we have grown this time deposit portfolio and kept that deposit portfolio, the pipelines were relatively short, like most banks. So in the second quarter, for example, we had $400-and-some million of CD maturities. In the third quarter, we had over $800 million. So it's managing those maturities and managing them, being able to reprice that maturity downward while still keeping the retention rate at an acceptable level. The retention rates have been pretty good on time deposits. They always end up being around 80%, which we think is about the industry average anyway. And then if you look at other deposits like money markets, our transaction accounts, our retention rates on those are actually over 90%, which we think is better than the industry average. We kind of track that pretty closely.

And then I'll give you one more fact, just if it helps you. On money market accounts, we've been able to reprice those as well. So in the second quarter, money market accounts, 83% of the money market accounts had a yield over 3%. 83% of the money market account balances had a yield over 3%, and now that has gone from 82% to 49%. So we've been able to kind of manage the pricing of that while still maintaining even growing deposit balances. I hope that extra color answers your question, is a little helpful.

Yes, that's great color. I appreciate that.

This is Mike. I would just add that for the people in the room, Mike McCuen, Jim Reske, Jane Grebenc, and Norm Montgomery, they monitor this every other week. And they're looking at the loan and deposit volumes that come on, they're looking at the net impact on liquidity and also the impact on margin. This is something that we feel between our fingers every other week, and we make game-day decisions of where we're at and where we're going and how we're going to get there. And I just love the process, and it also just keeps us informed in what's happening in the bank.

By the way, all of us -- speaking for all of us, supported by great teams of people all read kind of give us data and help us keep our fingers on that policy.

I appreciate the insight into the woodworks there. Regarding organic growth, it's come in pretty steady. Can you just speak to the expectations moving forward if payoffs are starting to pick up, maybe sizing up that headwind? And on the talent you got from Center Bank or anything in particular you're focusing on or excited about in terms of growth?

Yes. Some of the payoffs that we've seen are really healthy commercial real estate projects, refinancing into permanent markets, nonrecourse in the 5s. So that's not something we're going to do. And so that's some of the headwind that we see that's continued into the fourth quarter.

However, we have a lot of -- we just have a lot of offense between consumer, mortgage equipment finance, indirect auto, our loan growth is going to be more constrained by liquidity versus our ability to go out and execute. So that's kind of -- that's going to be the check rein on all of this. Mike McCuen, anything you want to add?

I totally agree. Yes, I agree. I think the volumes -- production volumes are good, tempered by some payoffs, but feel pretty good going into next year on production results.

Yes. And our guidance remains mid-single digit. Just a surprising bright spot this past quarter is growing home equity loans, like $15 million or $16 million. And so we just have a lot of ways to get there.

[Operator Instructions] Our next question comes from Matthew Breese from Stephens Inc.

Jim, you had mentioned that with the Fed cuts, you expect a little bit of near-term NIM pressure. To what extent might we see NIM pressure in the fourth quarter?

Yes, it's always hard to guess. I mean, even the standard guidance I was giving, I always say plus or minus 5 basis points because it -- every model has been perfect. But it's probably in that range. I don't think we go as far as 5 to 10, Matt. That would be a little extreme for the 1 quarter and then bounce back. So it's probably in the 5 basis point range.

Okay. Is it possible, let's just say we get a few cuts this quarter. We're down to 5 bps. Is it possible to get down another couple of basis points in the first quarter from bleed over and maybe an additional cut in the first quarter as well before we start to see some stabilization?

Yes. Absolutely possible. I mean, so much -- we're trying to do a projection based on a rate forecast, which has a ton of rates implied within it. But in our bank, and we've just seen that the reality is there's a lag. So there's -- if there's a rate cut, it hits the prime portfolio and SOFR portfolio right away. And then there's a lag in how we price the deposits. So there's always -- it's never perfect.

So you get some effects right away, and then over time, the liability side catches up. And the seasonal change in deposits, I'm just throwing that out there so that people aren't surprised about that. We kind of see this every year. We saw in different categories. Some of this is consumers doing holiday spending. But -- and some of it goes from fourth quarter into the first quarter, commercial accounts as well. So that happens just like it does every year, we'll be borrowing at the marginal rate, and that's a little more expensive. So that recovers early in the year next year.

And then you had also mentioned that you expect some improvement in deposit mix next year. What's behind that assumption? And maybe help us out with where you think we'll see some of the largest kind of mix shifts?

Just have a real push towards transaction accounts, and I gave some time deposit numbers a few minutes ago. We've loan time deposits because we had to do some of that just to raise the deposit balances, but we have a deep, deep push towards transaction accounts across the bank, both in consumer and commercial. Jane, I don't know if you wanted to add anything because that kind of your.

I can just reiterate it. And it's been grind -- transaction accounts are grinding, and it means we've been grinding the amount for a couple of years now. We're starting to throughput that labor and we'll just keep grinding.

Got it. Okay. Maybe just a couple more. Securities were down this quarter. We're now below 13% of total assets. It feels on the low side for you. Could we see some growth there in the coming quarters?

Probably not. I think we're going to hold it about where it is. I mean, our plan right now is to replace the runoff really slow anyway, but replace it and really not grow that portfolio. Part of that thinking is that we just want to use that liquidity -- use that liquidity for loan growth and not leverage up the bank by borrowing money to buy securities. So probably where you see it now is a level we plan to hold it probably through '26.

Great. And then just on equipment. Equipment finance continues to be a real driver of underlying C&I, is plus 10% a quarter sustainable? Or where do we start to see that revert to the mean?

We're probably about a year away. This is Mike Price. And we've been really pleased. We've been pleased with the yields and also with the credit performance. And -- but we also have a team that's been doing this for about 25 years. So we feel good about that. Mike, anything you want to add?

No, I think there's some incentives this year when it comes to depreciation and we expected that to impact and benefit equipment finance. At least for the next few quarters, we feel pretty good about that growth.

Our next question comes from Daniel Cardenas from Janney Montgomery Scott.

If could you provide some color on the competitive factors on the lending side right now? I've heard a lot of give on structure and pricing in various markets, wondering if you're seeing the same thing within your footprint?

I do think it depends on the market, Dan, and I'll let Mike take this. This is his, but I think there's a big difference between Columbus, Ohio and rural Pennsylvania, but there's -- Mike, what would you add?

I would say yields -- margin on the yields has probably dropped 25 basis points over the course of the year. And we really haven't changed much in our structure approach, but that's hurt the yields to your earlier question. I would say the metro markets are much more competitive than the rural markets, as Mike just said. On structure, it's gotten more aggressive. We mentioned the permanent markets, the agency lending. Those are very aggressive right now. It's not something we do, but it does impact our balance sheet. Is that helpful, Dan?

Yes, sir. I appreciate that. And then maybe color on the M&A front. I mean, we've seen activity pick up a little bit here recently. Wondering what you're seeing come across your desk if chatter has picked up, or it's slowed down from last quarter?

I think there's more conversations. I think, for us, we really wanted to help our depository and our liquidity. And we've had -- but a lot of conversations that we're pretty prudent, maybe too prudent at times, as I said last quarter, but we're hopeful that we can grow through acquisition. We've been stuck at about $12.5 billion, and crossing $10 billion, you normally lose a lot of your mojo as it relates to your profitability. We've been able to maintain that really with an eye to realistically get to 140, and we fell a little short this quarter because of credit on the ROA side.

It was just -- it's not an excuse. We need to have a great NIM and we need to have a great ROA, irrespective of the size. But certainly, if we had a right acquisition or 2 that could get us down the road a couple of billion dollars more, that would be terrific. Our bias is generally smaller because of the risk better and make sure that it's a good depository that can help our liquidity and help fund the bank. And I don't know if that's particularly helpful, Dan.

That concludes our Q&A session. I will now turn the conference back over to Mike Price for closing remarks.

Yes. Thank you. I appreciate your interest in our company. I would just add that we've really shifted to deliver the bank regionally, and we really expect the payoff of that to be not just to better deliver the mission, the better grow households and low-cost deposits in the depository and then also better grow our fee income. We do feel like we can grow the loans, and the other thing that's kind of interesting and exciting, I think, is as we look at as an executive team, 30 operating plans for our lines of business for our business units for our geographies as part of our strategic planning process, we really feel there's probably 1, 2 or 3 ways that we can continue to get more efficient.

Using technology like robotic process automation or AI or just better straight-through processes. So we just have bright people that can look at their operation and make it better. And so there's just a lot of things that we're excited about the company, to move the company forward and make it better. And we just also have a pretty talented team up and down throughout the organization. So thank you again. Look forward to being with a number of you over the course of the ensuing weeks, and just appreciate you.

This concludes our conference call. You may now disconnect.