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DATE

  • Wednesday, July 30, 2025, at 2 p.m. EDT

CALL PARTICIPANTS

  • President and Chief Executive Officer — Mike Price
  • Chief Financial Officer — Jim Reske
  • Bank President and Chief Revenue Officer — Jane Grebenc
  • Chief Credit Officer — Brian Sohocki
  • Chief Lending Officer — Mike McCuen

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RISKS

  • Nonperforming loans increased by $40.1 million in Q2 2025, primarily due to a single commercial floor plan credit and the Center Bank acquisition, with the floor plan loan representing just over 30% of total nonaccruals.
  • Management noted that maintaining deposit growth to fund loan growth "is an imperative" and signaled that higher deposit rates to secure this growth will "put a little bit of pressure on the margin going forward."

TAKEAWAYS

  • Core EPS: $0.38 (non-GAAP) for Q2 2025, up from $0.32 in the first quarter and surpassing consensus by $0.03.
  • Net Interest Margin (NIM): Increased 21 basis points sequentially to 3.83% in Q2 2025; most of the improvement stemmed from core banking operations, while Center Bank loan marks added four basis points to net interest margin (with two basis points expected to continue going forward).
  • Net Interest Income: Rose by $10.7 million quarter-over-quarter to $106.2 million, supported by organic loan growth and margin expansion.
  • Loan Growth: Total loans rose 8.1% annualized quarter-over-quarter, with growth was broad-based across equipment finance, small business, commercial, indirect, and branch–originated loans.
  • Deposits: Total deposits increased to $10.1 billion. up 9% year-to-date, with both loans and deposits grew in four of six geographic markets, and the Community Pennsylvania region represented 37% of deposit funding.
  • Noninterest Income: Increased $2.3 million sequentially to $24.7 million, led by mortgage, SBA, interchange, wealth, OREO gains, and other service charges.
  • Provision Expense: $12.6 million, with $3.8 million attributed to CECL provision for Center Bank and $2.6 million due to a $4.2 million specific reserve for a single commercial floor plan loan moved to nonaccrual.
  • Center Bank Acquisition: Added $295 million in loans and $278 million in deposits; integration proceeding as planned, expanding presence in Cincinnati.
  • NIM Guidance: Management projects NIM to reach the low-to-mid 3.90% range by year-end 2025, assuming two Fed rate cuts; without cuts, NIM could increase an additional five basis points by year-end 2025, aided by further macro swap maturities.
  • Operating Expense: Increased $1.1 million sequentially, excluding merger expenses, with higher salaries from Center Bank hires offset by lower incentive expense.
  • Tangible Book Value Per Share: Grew by 7.3% annualized from the previous quarter; share repurchases minimal in the quarter, but board authorized an additional $25 million in repurchase capacity, bringing total authority to $31.2 million.

SUMMARY

First Commonwealth Financial (FCF -0.09%) delivered higher core earnings per share (non-GAAP), margin expansion, and substantial growth in both loans and deposits for Q2 2025, following the integration of Center Bank and robust organic business trends. New loan production yielded 42 basis points higher than runoff loans, with fixed-rate originations contributed a 115 basis point positive replacement yield, sustaining NIM expansion despite emerging competitive and funding pressures. The single large commercial floor plan credit accounted for over 30% of nonaccrual balances, and led to most of the increase in nonperforming loans, while absent this and the Center acquisition, core credit quality was stable quarter-over-quarter. Deposit funding kept pace with loan growth, though management cautioned about incremental pressure on deposit costs and potential NIM compression as rate competition persists. Strategic focus remained on disciplined organic and small-scale acquisition growth, with Ohio operations contributing a majority of incremental loan volume and ongoing upside identified in increasing product and fee income penetration across existing markets.

  • Reske stated that NIM benefits from macro swap maturities should add two basis points in 2025 from swaps that matured last quarter, and further scheduled maturities in August, October, and November may provide incremental lift.
  • Expense guidance implies a slight trailing off of both expenses and noninterest income in Q4 2025 due to seasonal factors.
  • Securities declined to 13.5% of total assets in Q2 2025; management indicated current levels are adequate given strong liquidity and no need for higher on-balance-sheet securities ratios.
  • Reske described the approach to share repurchases as price-sensitive, stating, "We're not like some companies that might ... retire 3% of our shares this year" irrespective of share price, and noting that future buybacks would be capped by price targets near $17–$17.50 for the fourth quarter.
  • McCuen indicated equipment finance growth may moderate as portfolio seasoning increases, though credit quality and operating account acquisition from this segment were described as favorable.
  • Sohocki detailed that, aside from the large floor plan loan, the overall commercial portfolio, including all relationships over $25 million, remains strongly risk-rated with no early signs of deterioration.
  • Initial NIM model outputs for Q3 and Q4 2025 were 3.97% and 4.00%, but management applied a haircut to account for expected market-driven pressures.
  • Management cited ongoing opportunities for organic expansion within existing Ohio and western Pennsylvania markets, identifying significant unpenetrated product and fee income opportunities in current customer bases and geographies.

INDUSTRY GLOSSARY

  • OREO: "Other Real Estate Owned," refers to foreclosed properties held on the bank's balance sheet until sold.
  • CECL: "Current Expected Credit Losses," an accounting standard for estimating reserves for credit losses.
  • Macro Swap: Large-scale interest rate swaps used for asset-liability management, including hedging interest rate risk.
  • Floor Plan Loan: A revolving credit facility extended to businesses for financing inventory, typically vehicles, with repayments as inventory is sold.

Full Conference Call Transcript

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've 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 three 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. And with that, I will turn the call over to Mike.

Mike Price: Thank you, Ryan. We are generally pleased with our performance this quarter. Our core earnings per share of $0.38 surpasses consensus estimates by $0.03 and was an improvement from the $0.32 reported in the first quarter. Our headline financial metrics were robust with core return on assets of 1.31%, a core pretax pre-provision ROA of 1.95%, and a core efficiency ratio of 54.1%. We've consistently worked towards building a high-performing franchise. This quarter's results reflect those efforts and occurred just one year after absorbing a $13 million downdraft in annualized debit card interchange income due to the Durbin amendment as we crossed $10 billion in assets.

Let me highlight a few key drivers this quarter, many of which build on the trends we've discussed in past calls. First, our net interest margin expanded significantly from 3.62% in the first quarter to 3.83% in the second quarter, a 21 basis point increase. This was driven primarily by improved loan yields and lower deposit costs, and aided by the Center Bank acquisition and the roll-off of the macro hedges. This margin expansion, coupled with strong loan growth of 8.1% annualized, fueled a $10.7 million increase in net interest income over last quarter to $106.2 million.

We've said before that our focus on optimizing our balance sheet and driving high-quality loan growth would position us well in a dynamic rate environment, and we're seeing those efforts bear fruit. Loan growth was broad-based with standout performance in equipment finance alongside meaningful contributions from small business, commercial, indirect, and branch lending. Perhaps even more importantly, we grew both deposits and loans in four of our six geographic markets. On the fee income side, we saw a $2.1 million increase in noninterest income to $24.7 million, with strong contributions from mortgage, SBA, interchange, wealth, and other service charges. The growth reflects our ongoing efforts to deepen customer relationships and expand our noninterest income streams.

Our deposit franchise remains the cornerstone of our bank. Total deposits grew 9% year-to-date, reaching $10.1 billion. Notably, our Community Pennsylvania region, which accounts for 37% of our deposit funding, continues to perform exceptionally well. And we're pleased with our continual progress in Ohio; organic growth and small but strategic acquisitions have built a $4 billion bank. Ohio also accounts for the bulk of our new loan growth. The integration of Center Bank, which closed on May 1 and converted in early June, is progressing smoothly. Center added $295 million in loans and $278 million in deposits, bolstering our presence in Cincinnati.

We're confident the long-term value of this acquisition will enhance our Ohio franchise as we've seen with prior integrations. On the credit front, we experienced the continuation of positive trends in charge-offs and delinquency. Our second-quarter provision expense was $12.6 million, with $3.8 million tied to day-one CECL provision for Center Bank, which we've excluded from our core income metrics. Of the remaining $8.8 million in provision expense, $2.6 million can be attributed to a net increase in specific reserves, which was driven by a $4.2 million specific reserve for a single commercial floor plan loan that was moved to nonaccrual and reserved for in the quarter.

With respect to the floor plan credit, we are operating under a forbearance agreement, and as it remains an active workout, we appreciate your understanding that we will not be able to provide a lot of further detail on today's call. The impact of this single credit and the inclusion of Center caused nonperforming loans to increase by $40.1 million from the prior quarter. Absent these two events, our core credit metrics were criticized, classified, and nonperforming loans were all neutral quarter over quarter. Looking ahead, we remain optimistic about our trajectory. The momentum we've built through disciplined execution, strategic acquisitions, a regional business model, and a customer-centric approach positions us well for 2025 and beyond.

As we've said before, our goal is to be the leading community bank in our markets, delivering value to our stakeholders while staying true to our mission of improving the financial lives of our customers and communities. I'll now turn it over to Jim Reske for a more detailed review of our financials.

Jim Reske: Thanks, Mike. As Mike mentioned, 2025 is a strong quarter for us. Our earnings performance was driven by an expanding margin and strong fee income, so I'll focus on those two areas and wrap up with some brief thoughts on expenses and capital. The net interest margin, or NIM, expanded 21 basis points to 3.83%. We closed our acquisition of Center Bank during the quarter, so the natural question is, how much of that NIM improvement comes from the acquisition? Center's impact prior to marks was actually fairly neutral, which is not that surprising considering that its first quarter NIM was almost the same as ours, just three basis points less, and it was a relatively small acquisition for us.

The marks on their loan portfolio, however, added four basis points to our NIM in the second quarter. Of that four basis points, two were related to the acceleration of marks related to loan prepayments, but the other two should continue. All of that means that most of our NIM expansion was due to our organic banking business. We did have the benefit of a maturity of $150 million in macro swaps for two-thirds of the quarter, which added about three basis points to NIM in the second quarter and should add another two basis points next quarter.

The rest of the NIM expansion was split between assets and liability, with nine basis points of the increase coming from assets and five points from liabilities. New organic loan growth was strong at 8% annualized; those loans came out of the books at rates that were 42 basis points higher than the ones that ran off. The cost of deposits fell by eight basis points, but we had increased borrowings by the end of the quarter, so the total drop in the cost of funds was only five basis points. Our forward NIM guidance quarter is based on a revised baseline forecast that now contemplates two Fed cuts by year-end, down from three in last quarter's forecast.

In that case, we'd expect our NIM to expand to the low to mid-3.90s by the end of the year, give or take a few basis points as always. If there are no cuts at all, the NIM would expand another five basis points on top of that by 2025. That guidance includes an additional two basis points in 2025 from the macro swaps that matured last quarter, plus macro swap maturities of $25 million on August 25, $25 million on October 10, and $50 million on November 5. It also reflects expected pressure on loan spreads and the need to price deposits to fund our loan growth.

All told, with the loan growth, the acquired Center portfolio, and the improved margin, we believe that our net interest income should be between $110 to $115 million per quarter for the remainder of 2025. Turning now to fee income, our noninterest income increased by $2.2 million over the last quarter. There are about $600,000 of items here worth mentioning. First, we had about $375,000 in gains on the sale of OREO properties in the quarter. There's only about a million dollars of OREO left in our books, so I wouldn't count on outsized OREO gains again anytime soon.

Second, the $436,000 increase in BOLI income included a $166,000 from a death claim, while the rest of the increase comes from higher crediting rates on the BOLI portfolio. Other than that, our fee income improvements in the quarter were broad-based, and as Mike mentioned, included improved performance in fee income businesses like mortgage, SBA, and wealth. Turning now to expenses, operating expense, which excludes merger expense, was up by about $1.1 million from last quarter. Increased salary expense associated with the newly acquired Center employees was offset by lower incentive expense compared to last quarter, leaving the salary and benefits line item relatively unchanged.

Some of the increased expense that shows up in other this quarter was associated with increased loan volume in areas like SBA. Finally, with regard to capital, capital ratios improved due to retained earnings, along with a reduction in AOCI. Our tangible book value per share grew by 7.3% annualized from the previous quarter. There's very little buyback activity in the second quarter, but we ended the quarter with $6.2 million of share repurchase authority and just obtained an additional $25 million in share repurchase authority from our board yesterday. And with that, we'll take any questions you may have.

Operator: At this time, if you would like to ask a question, press star followed by the number one on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue, press star followed by the number one. Your first question is from the line of Daniel Tamayo with Raymond James.

Daniel Tamayo: Good afternoon, guys. Thanks for taking my questions. I apologize, Jim. Did you give a guidance range for expenses in the third quarter or the back half of the year?

Jim Reske: You know, I didn't, Danny. I looked at the expenses and the consensus. It seemed like they're pretty much on track. I think the consensus for the third quarter here, I'm looking at it now, is $72.8 million. Fourth quarter is $73.1 million. Since you asked the question, I will take the opportunity just to mention something. When we look at our internal budgeting and forecast, we see a little trail off in expenses and noninterest income together. They kind of offset each other, but we'll see a little trail off in the fourth quarter just due to seasonality. Just the way we budget.

There's something some business lines that have some seasonality where customers are shopping for cars and mortgages and buying homes more in the summer months, and trails off a little bit. Along with some expenses towards the end of the year, like hospitalization that trails off because of our way we operate our self-insurance or hospitalization expense. And the consensus forecast has both those pretty consistent and not I think the amount of expense in the from third to fourth quarter both of those should trail off a little bit in the third to fourth quarter. It doesn't matter that much because they kind of offset each other, appreciate you asking.

Daniel Tamayo: And then but then they would they would both bounce back in the first quarter of next year. Yeah. Probably. Because that's seasonal items. Yeah.

Jim Reske: That's right. That's right. Then, you know, we had pretty fairly so off the top, they had, like, four-ish percent-ish growth in expenses year over year pretty consistently.

Daniel Tamayo: Okay. Helpful. Thank you. You know, I guess, secondly, you talked about it at the end there on the repurchases. The stock price is higher now. You didn't buy back much or any in the second quarter, but yet the deal happening. And I'm just curious kind of what the appetite is. Obviously, you've got the new authorization. You got plenty of dry powder, if you will. So how are you guys thinking about repurchases now?

Jim Reske: We'll go back into the market. After out of blackout and probably set a price and we buy back our shares according to a pricing grid that we set with a maximum cap. So for example, in previous this last quarter, think, which was again after we got out of the Center Bank acquisition that was closed for a few days, we set the cap at $15.50 a share. But the price is going higher than that. So we won't really be buying back. We're not like some companies that might say, you know, come hell or high water. No matter what the price, we're gonna retire 3% of our shares this year.

And we don't care what the price is. We're just gonna spend the money about it. We really haven't done that. We try to keep some dry powder for dips in the price. And when it gets too expensive, we just come out of the market. So we haven't set that price yet for the fourth quarter. If I had a gun in my head right now, I guess it's somewhere in the $17 range. We'd say, okay. At that at that all those prices, $17 or $17.50, buy back stock. Like, it's the above that weight eat the powder dry, and go back in on the buy on the dips. That's kinda how we do it.

Daniel Tamayo: Okay. That's helpful. And then lastly, you know, I appreciate you can't give more color on the loan that drove the increase in NPLs, but maybe you can give color on where you think charge-offs trend from here. They've been low for the first half of the year. I think probably lower than expectations. So you guys thinking that is there a reason that they would be moving back up to a more normalized range in the back half? Or pretty clear in terms of the outlook for charge-offs?

Jim Reske: Yeah. I'll let Brian Sohocki, our Chief Credit Officer, answer that. Brian?

Brian Sohocki: Thanks, Mike. We're obviously pleased with the quarter. I'd highlight that after experiencing the centric charge-offs in 2023 and 2024, it was really diminished in the third in the second quarter. We're down to $34,000 in that category. You know, across the portfolio, charge-offs have been at acceptable levels. Equipment finance, indirect, have outperformed, you know, industry peers. As you mentioned, we've reserved for you know, this problem credit as well as others and, you know, work through those resolutions. But you know, absent that one large relationship, and with less headwind from Centric, I feel we've got a normalized We've always referenced kind of a mid-20 basis point charge-off range, 25 to 30.

And, you know, we could see return into those levels with the problem assets. But you know, nothing else to know.

Daniel Tamayo: Okay. Great. Thanks for all the color, guys.

Jim Reske: Thank you.

Operator: Your next question is from the line of Karl Shepard with RBC Capital Markets.

Karl Shepard: Hey, good afternoon, everybody.

Jim Reske: Hey, Carl.

Karl Shepard: Jim, I guess I wanted to start on the margin. You mentioned loan yield I think, replacing 42 bps higher this quarter.

Jim Reske: Yeah. That's right.

Karl Shepard: Any guidepost to maybe how that's gone in July and any way you wanna frame up, I guess, the quarter the best you can.

Jim Reske: Yeah. So all those forecasts we give on NIM really are predicated on continuing trends the previous quarters and continue that kind of loan growth trajectory, and that's the best we can do. So we simply continue with the past repeats itself, so we can go forward. We'll be able to keep that replacement made up. It's been pretty consistent. And so a little few basis points higher in the first quarter, think it was 46 off top of my head and then 43. Second quarter. So as long as the Fed doesn't cut rates, that should persist for a while. And, obviously, even if the Fed does cut once, it'll still probably be positive.

But there are definitely some estimates of loan production that go into that whole model that predicts the doesn't inform you.

Karl Shepard: Yeah. Okay. Carl, I would just add that of the 42 basis points increase, Commercial fixed is really dragging that number up at, like, one eleven. And indirect installment loan is probably 73 basis points. So that's pulling it up and just and they have big volume. The mortgage and some of the other categories have nice replacement yields, but there's not a lot of volume, honestly. So I would expect those dynamics to stay in place. You know, if I could just pile on to that as well just from my was saying. If you look at the whole all the loan categories, about 40% of the new originations coming out were fixed and 60% were variable.

The variable rate ones are just a matter of spread. So the replacement yield on those are they were nine basis points positive, not that much this quarter. But the fixed ones were a 115 basis points positive. That's how you get to the overall 42 basis points. So the fixed replacement yields at a 115 positive last quarter. That'll persist even through a few Fed cuts.

Karl Shepard: Okay. That's helpful. And then shifting topics, I guess, M&A has picked up for the industry. You guys have a pretty good track record of looking at lots of stuff and doing a few things make sense on the smaller side. Just kinda curious what discussions you guys are having and what makes sense and what your priorities are. Thank you.

Jim Reske: Just a discussion or two. Not a lot. I mean, I think Jim and I always Jim and I always say, we've looked at, I think, 70 loans or 70 opportunities over ten years, so about seven a year. I don't think that's really picked up for us. Okay. And a big item, but we just we just we tend to bow out on price. From larger deals, and the smaller deals remain interesting to us. We also have to see a pretty good path of low-risk execution before we get super excited as well. So maybe our box is a little tighter than others. We do like smaller deals.

We think we can really leverage them into something a little bit more. As we bring our different verticals in and I think Jane Grebenc over the years and Mike McCuen now they're really good at you know, indirect auto, mortgage, small business. And just bringing them into the mix. So maybe a little higher-end investment real estate. And then just really creating some magic. The key is to make sure the deposits keep up with the loan growth. And the focus is on funding the loans. And that's we'll be doing that even in quarters where the loans aren't growing. Mike or Jane, you wanna add anything to that?

Mike McCuen: I don't think so, Mike. I think you've think you did a good job of sort of explaining our psyche.

Jim Reske: Yep. Yeah. I agree.

Karl Shepard: Great. Thank you all.

Operator: Your next question is from the line of Kelly Motta with KBW.

Charlie (for Kelly Motta): Hi, guys. This is Charlie on for Kelly. Thanks for the question.

Jim Reske: Hey. Hey.

Charlie (for Kelly Motta): You guys saw some strong organic loan growth this quarter. Just wondering if you could expand on kind of what you're seeing in the pipelines, this level of growth is? And general momentum is continuing. Thanks.

Jim Reske: I think the pipeline is pretty good. I do think that we're gonna have a little a few more payoffs in the third quarter. Mike, do you wanna expand upon that?

Mike McCuen: Yeah. I think a little bit of summer wall and some payoffs from the permanent market, but I expect activity to stay at this pace in the fourth once we get into the fourth quarter. A strong finish to the year.

Charlie (for Kelly Motta): Okay. Great. And then specifically, if you could touch on the equipment finance portfolio you guys had some good, like, momentum there. I know you brought on some new teams recently. Just like the growth there, and if what you're seeing is sustainable and maybe what it could get up to in terms of a percentage of the portfolio. Thank you.

Jim Reske: Yeah. I'll start there and let Mike and Mike finish. But we're about three, three and a half years in. Those loans are typically five-year loans. So we're gonna hit a wall here in about a year and a half. Even if we continue to put on loans the pace we are where the portfolio will probably flatten out a bit.

Mike McCuen: And so I'd start there, and we just like the business. We like have a professional that's been doing this for about three decades and a good team, and just like the credit quality we're seeing and the types of assets he's putting on, Mike, what would you add? Just mathematically, the growth was huge because it's obviously a start-up operation, and I would just say that so far, we're pleased with the type of assets we're financing and the credit quality of those assets. And furthermore, it's augmenting our bank relationships where, historically, we did not have equipment finance options for clients. Especially tax leases. We now have that. So we expect incremental value from that relationship. Yeah.

We also have very we're very focused on growing C&I through our regional model from the smallest small business out of branches and 50 and a $100 million loan hunks up through commercial. And then most importantly, getting operating accounts in core deposit relationships from businesses to fund our growth.

Charlie (for Kelly Motta): That's great. Thank you. I'll step back.

Operator: Your next question is from the line of Manuel Navas with D. A. Davidson.

Manuel Navas: Hey. Growth is really strong. The quarter. You guys stay up in mid-single digits core ex the acquisition level of growth? Or is there any upside to it? And maybe comment on the mix as well.

Jim Reske: Yeah. I think, the guidance will continue to be mid-single digits because funding for us is an imperative. And keeping pace with the funding. The mix we would love to see that continue to rotate towards C&I commercial real estate, owner-occupied commercial real estate, and those loans are right now have a seven handle on them. And, that being said, you know, we're a larger community bank than most than most banks of our size. With about, you know, about 40% of the action. And we know that credit leads to cornerstone deposit relationships particularly with younger households. So we want to have credit access for the good consumers, some 200,000 plus customers. In our six markets.

So we will remain open there, and we feel that even though the rates are a little lower, the replacement rates on those loans is very positive. Jane, anything you would add on consumer or Mike on commercial?

Jane Grebenc: Well, we've had a good run the consumer businesses, and that's all in market existing bank customers. So we have no interest in pinching that. Those are good relationships. As you said, small business, every one of those loans is really important to us. And, the other consumer businesses, indirect, you know, replacement yields have been good, and mortgage is generally a for-sale business for us. It's a fee business right now. We're not running it generally as a balance sheet business. So, we like them all.

Jim Reske: And I would just say for the benefit of all the employees, we're seeing and Mike and Jane insist upon core deposit relationships with every lending loan.

Manuel Navas: K. I appreciate the commentary. Shifting over to deposits, the NIM guide, I understand it. You just dive into some of the dynamics and you'd point out that there might be some expected loan yield pressure in the model, and then some deposit cost increases to fund that future loan growth. Can you kind of flesh that out a little bit? Yeah, Manuel. It's Jim. I'll tell you exactly what I was thinking. I mean, the model is giving you numbers. At a little higher than the guidance I'm giving to you. But I happen to know of some things that we're doing that are that we're doing that were not in the model. The model was last updated.

So I know that, for example, we looked at the deposit growth and loan growth in the second quarter and put the pedal down to the gas the gas put the gas pedal down a little firmer. The deposit growth. So and deposit rates we're paying to get that growth because we want to make sure that we fund our loan growth with deposits as we go along. And so that's probably going to put a little bit of pressure on the margin going forward. And then anecdotally, we hear about finding loan spreads We could say that you might hear those anecdotes in a lot of quarters, but you hear that more and more.

And so for model I'll just tell you, the model is saying that the MID would be 3.974 o percent in the third and fourth quarters respectively. But knowing what we know, we haircut that a little bit to give the guidance that we do give, which is low to mid-three nineties. Now the low rate pricing yields, we have nine basis points of that. So if that just continues, that's nice. That just keeps going. If the Fed starts cutting rates, then that might be a little lower. But you do have those macro swaps coming off. Which would be positive towards the end of the year.

So all that goes into that guidance and that's kind of giving me a little background of our thinking.

Manuel Navas: That's great. And that's the natural push against kind of the high end of the NIM is that some point competition can step in. Like, how high could this get into next year? Is that just it just really depends on rates Any thoughts on that type of discussion?

Jim Reske: Yes. Yeah. Thanks for asking. It's early to talk about next year. I mean, the math if you the Fed doesn't cut rates at all. The math just keeps clicking away, the market just keeps going up, up, up, up, up. But as someone actually pointed out on last quarter's earnings call, you know, the industry generally doesn't sustain NIMs over 4% for very long. It gets competed away on both the asset and the liability side. And we like they're saying, Randall, we've already seen some of that pressures on spreads on the commercial loan side. And you know, the need to price up deposits to get that growth. So the model would say the Fed doesn't cut rates.

It just gets it's tremendous. But realistically speaking, you know, as they say, the trees don't grow to the sky.

Mike Price: Yeah. I would just add just a little counter intuitively. We if rates settle a bit, I think it primes the pump for demand and we have a broad business model for consumers' business. And I think we have more business, more cross-selling opportunities, and consumers are in better shape. As our small businesses. The SBA business, there's more fee income. So I just think, you know, Jim and I and the team, Jane and Mike, we just have tried to make it fifty variable fix. So we do well irrespective of where interest rates go, and I think our fee income our fee businesses would benefit from So I think either way, we can do quite well. Yeah.

And that actually gives me an opportunity, then you all, if you don't mind, three dimension like, since you're talking about that kind of view over the next year, we do have more macros for ensuring next year. There's a $150 million in May 2026 and another $25 million on October 26. So that will help the margin. So even in a world where the Fed in our forecast, there are four more cuts in 2026. The model is predicting a NIM that stays above slightly above 4% for next year.

So but we'll know more as we really work on sharpening our pencils on budgets and get a little more accurate forecast in the earnings calls for the third and fourth quarter this year.

Manuel Navas: K. Great. Anything you wanna add? I'm all I'm all ears.

Jim Reske: Thanks. Thanks. Thanks for the commentary.

Operator: Thanks, Noah. Your next question is from the line of Matthew Breese with Stephens Inc.

Matthew Breese: Hey, good afternoon, everybody.

Jim Reske: Hey, man.

Matthew Breese: Know, maybe to start, just a modeling question. Securities were down a bit this quarter. Now sit at 13.5% of total assets. That feels a little low. Versus where we've been recently. Maybe not. It just feels a little low versus where we've been. Is that right? Do you like to be kinda in the 14 range, or is 13 and a half adequate?

Jim Reske: No. We're okay with that. 13 and a half is adequate. We want to make sure we have securities on hand pledge against borrowings and other things we need to use those for. It's down a little bit this quarter because our purchase activity was slow quarter. We had pre-purchased some in previous orders to get ahead of it a little bit, and so didn't feel the need to buy much this quarter. So we don't feel from a liquidity standpoint that we need a higher percentage. We have so much available liquidity. And real good there's a slide in our webcast presentation that talks about this.

So we have social liquidity backed by assets that we can touch think it's over $5 billion. So we don't feel like we need to keep 15, 20% of our assets and securities just for the sake of on-balance sheet liquidity. Our liquidity is very strong without that. So we're very comfortable with where it's at.

Matthew Breese: Got it. Okay. A couple of bigger picture ones. You know, strategically, just thinking about your markets, where from a market share position standpoint do you feel like there's the most room for opportunity? We hear you talk a lot about Ohio as being an engine for growth. Can that well continue for a lot longer and if not, where on the map might we see you go that could be the next kind of vehicle for the next Ohio for you?

Mike Price: I honestly believe in perhaps I'm delusional, but I think between Cincinnati, Cleveland, Columbus, Pittsburgh, our community markets in Western PA. We could build out a bank that's two times the size. Because we're just not a market maker. We're kind of on the fringes of market share. And with this speed, a lot of crumbs coming off the table from bigger banks and I just feel like we can fill it in. And love to add some rural depositories you know, fill in those metro markets, maybe do a little bit of de novo, have some cities between in Ohio, like Dayton.

We also have our opportunities in Western PA And then we really haven't penetrated all of our lines of business in each of our markets. I just think within these markets, we can grow the company substantially. That doesn't mean we wouldn't go to Northern Kentucky or we wouldn't do something contiguous We just feel like we have to be able to extend the brand thoughtfully and be able to cover just not outkick our coverage as they say in football. And so I don't know that we're super interested in just getting to the next market. I think we can grow where we're at, honestly. Jane or Mike, anything you would add there?

You know, the recent acquisition is a good example of that.

Jane Grebenc: It's in market. It gives us more higher profile. But even with that, we're still you know, maybe tenth in market share in that market. So we have a lot of upside. Those are the kind of things that we absorb quickly, and we can move on to the next one and grow that market further. Yeah. And we haven't really penetrated our fee income businesses. We've really good in Community PA and in Pittsburgh, but we're just getting there. With our regional model with businesses like wealth and insurance and other things that we do pretty well at. And SBA, And so I'm pretty enthused just about Western PA and Ohio, honestly.

Matthew Breese: Yep. Like, to put a finer point on it, two things. One, our product penetration from the existing households we have still leaves a lot of room for growth. So as our execution gets better, there's a lot of embedded upside there. And there's a lot of terrific small businesses and middle market lower middle market companies as we drive from Pittsburgh to Cleveland, and we're interested in all of those. So, and we've spent some money on our treasury management offerings. So we can bank those companies in addition to just lending to them.

Mike Price: Appreciate all that. Maybe just as a follow-up. You know, Senator McCormick a couple weeks ago, few weeks ago held a conference in Pittsburgh around AI and data centers power investments in Pennsylvania. I think to the tune of maybe, like, $90 billion or just a huge number. Curious if you attended, what you heard, how beneficial could this be to the area and if any of these forms of real estate or investments are you know, directly or indirectly helpful to you all? That's all I had. Thank you.

Mike Price: Yeah. We see it all over. We see it right in our backyard in Indiana County. There's a $10 billion investment for a power plant just for a data center and it's a conversion of a cold and natural and it'll be a natural gas power plant. And they're really firing up really the Marcellus Shale to help fuel that. And we're seeing it all over. We're seeing it in the infrastructure with the, the gas pipelines, the trucking, everything. And, not to mention the plastics that complement the natural gas. So I know. I just think you know, this area, particularly Pennsylvania, has been harder hit over the last twenty-five years.

I just think you know, the future could be brighter, and we're seeing a significant investment everywhere.

Matthew Breese: Appreciate it. Thank you.

Operator: As a reminder, to ask a question, press Your next question is from the line of Daniel Cardenas with Janney.

Daniel Cardenas: Hey. Good afternoon, guys.

Jim Reske: Good afternoon. Just quickly returning to credit quality. Of this, floor plan nonaccrual, what percentage of your total nonaccrual portfolio does this represent? And then second, what's the overall health of the remainder of the portfolio?

Brian Sohocki: Sure. I can take that, then I'm gonna have to have you repeat the second part. I couldn't hear it entirely. But it's approximately just over 30% Our nonaccruals, as you saw that I mean, I referenced a nonperforming bucket increased $40 million, did it to just shy of a $131.8 million of that was the floor plan. So pretty straightforward on that 100 basis to be just over 30%.

Jim Reske: Brian, could you mention that how remainder of the increase in NPLs was from the acquisition. Right?

Brian Sohocki: Sure. Yes. So and that's a good point, Jim. So the remainder, if you look at the $40 million increase, $31.9 million from the dealer floor plan. $8.4 million from Center Bank acquisition, So absent those two events, had a $300,000 minimal, but $300,000 decrease in the quarter. We would have went from 65 basis points to 63 basis points.

Daniel Cardenas: Okay. And so is this large loan, the floor plan loan, is that a an FCF legacy loan, or was that acquired?

Brian Sohocki: No. Yeah. I'll tell you a little bit about the dealer floor plan portfolio. It is legacy. None of our floor plans have been acquired. At the at 06:30, our floor plan segment was a $154 million of outstandings. So rather manageable small portfolio 23 customers, and this was the only one over $20 million of exposure. We just have two others over $15 million with the rest really being granular inside $10 million of exposure. And, you know, the portfolio is performing well. Strong weighted average risk rating. In compliance, know, show you know, here, we've really had an isolated event. With the with the one dealer. Happened to be the largest.

Daniel Cardenas: Okay. Excellent. And then in terms of just your larger relationships, is this like, in the top 20 or 25? Overall?

Brian Sohocki: It was. Know, we manage our borrowers over really, we've monitored internally over $15 million Yeah. There's really about 10 relationships over $25 million. So this is one of the larger

Daniel Cardenas: And how are those relationships performing?

Brian Sohocki: Very well. That portfolio is very strongly risk-rated. All but one, I would comment or two would be better than past watch. So it's a strong portfolio. No early signs of or any early indications of weakness in that portfolio.

Daniel Cardenas: Okay. And did this credit have any impact on the margin this quarter?

Brian Sohocki: There's a move to nonaccrual. It's we had a late in May. That's $300,000. It did. Yeah. So it's probably took away a basis point or two. Reversal of interest in May and April. That's right. Yeah. Yeah. I hope you heard that. So we've been went to nonaccruals reversal of interest about $300,000. So that would have hit them on NIM too. Maybe round it at one pace. Point.

Daniel Cardenas: Okay. Excellent. Excellent. I think that's it. You've answered all my other questions. I appreciate the time. Thank you.

Jim Reske: Thanks, Dan.

Operator: At this time, there are no further questions. I will now hand the call back over to Mike Price, President and CEO.

Mike Price: Very good. Thanks for the questions. It's always good to engage. Excited about the future of our company. To grow organically, remain disciplined with M&A, to make sure that our low-cost deposits keep pace with our commercial loan growth, and just do a better job of cross-selling our clients and bringing them fee income opportunities. But just thank you, and just have a good day.

Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.