First Commonwealth Financial (FCF)

Regional banking company First Commonwealth Financial (NYSE:FCF) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, 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.

Company Overview

With roots dating back to 1934 and a network spanning 30 counties across two states, First Commonwealth Financial (NYSE:FCF) is a financial holding company that provides consumer and commercial banking, wealth management, and insurance services.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

First Commonwealth Financial competes with other regional banks operating in Pennsylvania and Ohio such as PNC Financial Services (NYSE:PNC), KeyCorp (NYSE:KEY), Huntington Bancshares (NASDAQ:HBAN), and S&T Bancorp (NASDAQ:STBA), as well as national banks and credit unions serving the same markets.

In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees.

Luckily, First Commonwealth Financial’s revenue grew at a decent 5.8% compounded annual growth rate over the last five years. Its growth was slightly above the average bank company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and inflation readings. First Commonwealth Financial’s recent performance shows its demand has slowed as its annualized revenue growth of 4.8% over the last two years was below its five-year trend.

This quarter, First Commonwealth Financial reported modest year-on-year revenue growth of 1.2% but beat Wall Street’s estimates by 0.6%.

Net interest income made up 76.3% of the company’s total revenue during the last five years, meaning lending operations are First Commonwealth Financial’s largest source of revenue.

Net interest income commands greater market attention due to its reliability and consistency, whereas non-interest income is often seen as lower-quality revenue that lacks the same dependable characteristics.

First Commonwealth Financial’s net interest income has grown at a 9.1% annualized rate over the last four years, slightly better than the broader bank industry.

When analyzing First Commonwealth Financial’s net interest income over the last two years, we can see that growth decelerated to 6.3% annually.

From a unit economics perspective, we can see the company’s net interest margin averaged a decent 3.6% over the past two years. However, its margin contracted by 13.3 basis points (100 basis points = 1 percentage point) over that period.

This decline was a headwind for its net interest income. While prevailing rates are a major determinant of net interest margin changes over time, the decline could mean First Commonwealth Financial either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition.

First Commonwealth Financial produced $95.52 million of net interest income in Q1, up 3.5% year on year and in line with Wall Street Consensus estimates. Net interest margin was 3.6%, beating sell-side expectations by 2.2%.

Looking ahead, sell-side analysts expect net interest income to grow 8.4% over the next 12 months, an improvement versus the last two years.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

First Commonwealth Financial’s EPS grew at a remarkable 8.3% compounded annual growth rate over the last five years, higher than its 5.8% annualized revenue growth. However, we take this with a grain of salt because its efficiency ratio didn’t improve and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.

In Q1, First Commonwealth Financial reported EPS at $0.32, down from $0.37 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects First Commonwealth Financial’s full-year EPS of $1.34 to grow 8.1%.

Banks operate as balance sheet businesses, with profits generated through borrowing and lending activities. Valuations reflect this reality, emphasizing balance sheet strength and long-term book value compounding ability.

Because of this, tangible book value per share (TBVPS) emerges as the critical performance benchmark. By excluding intangible assets with uncertain liquidation values, this metric captures real, liquid net worth per share. Other (and more commonly known) per-share metrics like EPS can sometimes be murky due to M&A or accounting rules allowing for loan losses to be spread out.

First Commonwealth Financial’s TBVPS grew at a solid 6.8% annual clip over the last five years. TBVPS growth has also accelerated recently, growing by 13.4% annually over the last two years from $8.16 to $10.48 per share.

Over the next 12 months, Consensus estimates call for First Commonwealth Financial’s TBVPS to grow by 6.4% to $11.15, mediocre projection.

Leverage is core to the bank's business model (loans funded by deposits) and to ensure their stability, regulators require certain levels of capital and liquidity, focusing on a bank’s Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a bank holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all banks must maintain a Tier 1 capital ratio greater than 4.5% On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, banks generally must maintain a 7-10% ratio at minimum.

Over the last two years, First Commonwealth Financial has averaged a Tier 1 capital ratio of 12.3%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity, or ROE, quantifies bank profitability relative to shareholder equity — an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.

Over the last five years, First Commonwealth Financial has averaged an ROE of 11.3%, impressive for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This is a bright spot for First Commonwealth Financial, which mostly fails to excite in other areas.

It was encouraging to see First Commonwealth Financial beat analysts’ tangible book value per share expectations this quarter. We were also happy its net interest income narrowly outperformed Wall Street’s estimates. On the other hand, its EPS was in line. Overall, this was a weaker quarter. The stock remained flat at $15.93 immediately after reporting.

Updated: July 11, 2025 at 12:19 AM EDT

Before deciding whether to buy First Commonwealth Financial or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

We think First Commonwealth Financial is a solid business. First off, its revenue growth was good over the last five years and is expected to accelerate over the next 12 months. And while its declining net interest margin shows its loan book is becoming less profitable, its spectacular EPS growth over the last five years shows its profits are trickling down to shareholders. On top of that, its market-beating ROE suggests it has been a well-managed company historically.

First Commonwealth Financial’s P/B ratio based on the next 12 months is 1.2x. When scanning the bank space, First Commonwealth Financial trades at a fair valuation. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $18.40 on the company (compared to the current share price of $17.18), implying they see 7.1% upside in buying First Commonwealth Financial in the short term.