FCF Q1 Deep Dive: Loan Growth, Deposit Discipline, and Tariff Uncertainty Shape Outlook

Regional banking company First Commonwealth Financial (NYSE:FCF) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 1.2% year on year to $118 million. Its non-GAAP profit of $0.32 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

First Commonwealth Financial’s first quarter results showed modest year-over-year growth, with management citing healthy loan origination and disciplined deposit cost control as key factors. Net interest margin improved, aided by falling deposit costs despite ongoing deposit growth. CEO Mike Price highlighted that the bank’s focus on expanding its commercial lending teams and equipment finance group contributed to growth momentum, while fee income softened due to fewer gains on sale and seasonal factors. The quarter’s efficiency ratio rose as operating expenses increased, primarily from incentive compensation and investments in talent. Management described consumer credit trends and asset quality as stable, though they acknowledged headwinds from tariffs and inflation uncertainty.

Looking ahead, management’s forward guidance centers on continued loan growth, stable to improving credit quality, and cautious optimism regarding deposit trends. CFO James Reske stated that net interest margin should expand through the year, primarily due to expiring macro swaps and a conservative approach to deposit cost assumptions. The acquisition of CenterBank is expected to provide operational efficiencies and expand the bank’s reach in Cincinnati. CEO Mike Price noted that, while tariff-related risks could impact client sentiment and loan demand, the commercial pipeline remains robust and fee businesses are expected to recover as the year progresses. Management emphasized a focus on disciplined cost management and leveraging new talent to drive both growth and efficiency.

Key Insights from Management’s Remarks

Management attributed quarterly momentum to targeted investments in lending teams, expanding equipment finance, and ongoing cost control, while addressing the impact of tariffs and shifting deposit trends.

• Commercial loan expansion: Growth in commercial and equipment finance loans was a central driver, supported by new hires and market share gains as some larger competitors retreated from the space. Management indicated that loan pipelines remain strong heading into the second quarter.
• Deposit cost management: Despite growing deposits at a healthy pace, the bank succeeded in reducing deposit costs, resulting in a sequential increase in net interest margin. Executives explained this was achieved through proactive rate management and customer retention strategies, particularly as customers shifted funds from certificates of deposit (CDs) to savings and money market products.
• Fee income softness: Fee income declined quarter-over-quarter, impacted by seasonal effects and a slowdown in Small Business Administration (SBA) gains on sale. However, management expects fee businesses such as wealth, insurance, and service charges to improve in coming quarters as underlying pipelines recover.
• Expense increases: Operating expenses rose, mainly due to incentive compensation related to the prior year and investments in commercial and equipment finance teams. Management views these investments as necessary for supporting future revenue growth and building out capabilities in key markets.
• Tariff and macroeconomic uncertainty: The introduction of new tariffs and ongoing inflation concerns were cited as sources of external uncertainty. While management reported that most clients have adapted their supply chains and pricing strategies, certain sectors, such as manufacturing and chemicals, could face headwinds if trade tensions persist.

Drivers of Future Performance

Management’s outlook for the remainder of the year is shaped by expectations of further net interest margin expansion, disciplined expense management, and the integration of CenterBank.

• Net interest margin expansion: Executives expect net interest margin to improve through the year, driven by the expiration of macro swaps and a conservative approach to deposit rate reductions. The NIM forecast assumes stable aggregate deposit costs, with upside potential if market conditions allow for further reductions.
• Expense discipline and talent integration: Management plans to maintain a tight focus on non-interest expense, even as new hires from CenterBank and recent investments in lending teams are integrated. Opportunities for further efficiency gains are being evaluated for the second quarter.
• Tariff and credit headwinds: While the commercial loan pipeline remains strong, management acknowledges that sustained tariff uncertainty and the potential for renewed inflation could dampen business investment and loan demand. They are monitoring credit quality closely, especially in exposed sectors, but see current asset quality as stable.

Catalysts in Upcoming Quarters

In coming quarters, our analysts will be monitoring (1) the integration and operational impact of the CenterBank acquisition in Cincinnati, (2) the trajectory of net interest margin as macro swaps expire and deposit costs evolve, and (3) the resilience of loan origination pipelines in the face of tariff-related economic headwinds. Progress in fee income recovery and cost containment will also be key signposts for sustained performance.

First Commonwealth Financial currently trades at $15.87, up from $15.29 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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