Q1 2023 F.N.B. Corporation Earnings Call
Speaker 1: I.
Speaker 2: Good morning and welcome to the FNB Corporation first quarter 2023 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad.
Speaker 2: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded.
Speaker 2: I would now like to turn the conference over to Lisa Hajdu.
Speaker 2: manager of investor relations
Speaker 2: Please go ahead.
Speaker 3: Thank you. Good morning and welcome to our earnings call. This conference call of FNB Corporation and the report it files with the Securities and Exchange Commission often contain forward-looking statements and non-GAAP financial measures. non-GAAP financial measures should be viewed in addition to and not in an alternative for a reported result prepared in accordance with GAAP.
Speaker 3: Reconciliations of GAAP to non-GAAP operating measures for the most directly comparable GAAP financial measures are included in our presentation materials and in our earnings release. Please refer to these non-GAAP and forward-looking statement disclosures contained in our related materials report and registration statement.
Speaker 3: vital with the Securities and Exchange permission, and available on our corporate website.
Speaker 3: A replay of this call will be available until Friday, April 29th and the webcast link will be posted under the About Us investor relations section of our corporate website.
Speaker 3: I will now turn the call over to Vince Dilley, Chairman, President, and CEO .
Speaker 2: Thank you and welcome to our first quarter earnings call.
Speaker 2: What you need today are Vince Calabrese, our Chief Financial Officer, and Gary Guerrari, our Chief Predator Officer.
Speaker 2: That would be reported first quarter net income available to common stockholders of $144.5 million or 40 cents per diluted common share. On an operating basis, EPS grew 54% over the first quarter of 2022.
Speaker 2: Operating pre-provision net revenue increased 68% from the year ago quarter as we managed to positive operating leverage of 21%.
Speaker 2: The overall success of FMB's financial performance was due to the consistent execution of our previously stated strategic initiatives.
Speaker 2: For example, we set out to diversify income and rely on various sources to maintain performance.
Speaker 2: This quarter, F&B reported record wealth management revenue of $18 million.
Speaker 2: on a linked quarter basis, contributing to our stable non-interesting
Speaker 2: We also strive to be our customers' primary operating.
Speaker 2: And through our deep customer relationships and granular deposit base, we were able to maintain stable average deposit balance.
Speaker 2: Our philosophy of maintaining consistent and prudent underwriting standards, regardless of the macroeconomic environment, contributed to F&B growing average loan 3.6% in the quarter without compromising on asset quality.
Speaker 2: The first quarter also had positive momentum on several key performance metrics, including return on tangible common equity of 20%, return on average assets of 1.4%, and return on average assets of 1.4%.
Speaker 2: and a tangible common activity ratio of 7.5%.
Speaker 2: one of the highest levels in company history.
Speaker 2: We are pleased with this quarter's results and believe it validates the aforementioned execution of our strategy, especially our conservative and diligent balance sheet management with ample capital and liquidity to withstand the adversity of the industry and a more challenging economic environment.
Speaker 2: We are pleased with this quarter's results and believe it validates the aforementioned execution of our strategy, especially our conservative and diligent balance sheet management, with ample capital and liquidity to withstand the adversity of the industry and a more challenging economic environment. J Merrittthereum Bank failures.
Speaker 2: However, idiosyncratic in nature, have placed a spotlight on the importance of liquidity in maintaining a diversified new granular deposit.
Speaker 2: conservative and prudent balance sheet management, solid capital levels.
Speaker 2: and sound risk management policies in government.
Speaker 2: These practices have always been integral to FMB's long-term strategy and are ingrained in our Enterprise Risk Management Program, which includes regular liquidity stress test analysis.
Speaker 2: capital stress testing, CECL reserve model analysis, and diligent proactive credit models.
Speaker 2: As I previously mentioned on multiple calls,
Speaker 2: We foster close relationships with our customers.
Speaker 2: and remain focused on being their primary operating bank.
Speaker 2: In addition to prioritizing my touch service,
Speaker 2: We have made strategic investments in our digital technology, treasury management platform, and payment solution capabilities, which enables our customer privacy.
Speaker 2: The first quarter deposit levels through the industry disruption are a testament to the success of our focus on growing client relationships.
Speaker 2: With the positive ending of quarter at 34.2 billion, the slight decline of 1.7% in the prior quarter, outperforming the H8 deposit data for small and large paying.
Speaker 2: Between March 8, when the industry volatility began, and quarter end, our deposit balances were essentially flat, declining 0.7%, primarily due to seasonal offloads from normal wholesale and retail customer activity.
Speaker 2: Another strength is the diversity of our deposit base throughout the different customer segments, with consumer account balances comprising the largest segment of total deposits at 41%.
Speaker 2: The consumer segment is comprised of approximately 1 million accounts.
Speaker 2: with the median consumer deposit balance at quarter end around $5,000.
Speaker 2: Additionally, since March 8, we experienced a net increase in the number of accounts across all customer segments. Positioning F&B is a benefactor as deposit inflows are restored to normal levels and customers diversify funds between banks.
Speaker 2: Because of the granularity in our deposit base, FMB ended the quarter with approximately 76% of deposits either insured by the FDIC or collateralized, which exceeds the peer median for the 50 banks in the KRX Bank Index at Dear Energy.
Speaker 2: If necessary, we also have available liquidity to fund up to 170% of our uninsured and non-colonialized overal denote small looking if necessary.
Speaker 2: as of March 31, placing F&B in a very strong quitting position.
Speaker 2: Method of these investments portfolio philosophy is also conservative by nature with respect to duration and risk.
Speaker 2: We managed to an average duration between three to five years.
Speaker 2: and have historically maintained a fairly even split between available per sale and health insurance.
Speaker 2: But the onset of the current banking industry disruption has like the management activated our contingency funding point.
Speaker 2: Our team's response was swift to work with diligence the over the weekend to ensure that our Board of Directors will reap employees will reassure of our stability and customer facing personnel began proactive flying outreach with talking points regarding the strength of our balance sheet.
Speaker 2: including at their decathal and liquidity position on a relative and outright basis. In addition, we bolstered our liquidity position by increasing cash of the balance sheet by nearly $1 billion.
Speaker 2: Through the financial crisis, pandemic, and now the banking industry disruption, FMP has earned our customers trust. And we promised to uphold that trust as we have positioned the company to outperform the industry in a wide array of potential economic and industry scenarios.
Speaker 2: Credit continues to remain as one of our strengths. I am very pleased to once again support solid credit position of low delinquency at 60 bases. I will now turn the call over to Gary to give more details on our asset quality and our consistent management of credit risk.
Speaker 2: horse train. I am very pleased to once again support solid prediposition of low delinquency at 60 basis. I will now turn the call over to Gary to give more details on our asset quality and our consistent management of predipersk. Gary?
Speaker 4: Thank you Vince and good morning everyone. We ended the quarter with our credit portfolio well positioned and our asset quality metrics remaining near historically low levels.
Speaker 4: Our performance for the period reflects total delinquency at 60 basis points, NPLs and OREO at 38 basis points, and net charge-offs at 18 basis points.
Speaker 4: Criticized loans were up moderately at 19 basis points, quarter over quarter, although down 55 basis points year over year and still at historically low levels.
Speaker 4: I will cover these gap asset quality highlights for the quarter in more detail. Followed by some insight into our credit strategy, we use to manage the loan portfolio throughout economic cycles.
Speaker 4: Let's now walk through our credit results. Total delinquency declined 11 basis points in the quarter, maintaining the historically low delinquency levels seen in previous quarters.
Speaker 4: NPLs in Oreo were down one basis point compared to the prior quarter with 55% of our NPLs in a contractually current payment status.
Speaker 4: Net charge loss for the quarter totaled 13.2 million or 18 basis points on an annualized basis with 11 basis points reflecting the use of previously established specific reserves.
Speaker 4: Total provision expense for the corridor stood at $14.9 million, providing for loan growth and charge-offs that did not have a previously established specific reserve.
Speaker 4: diesel-related model builds were moderate at approximately 4 million.
Speaker 4: Our ending funded reserve increased 1.7 million in the quarter and stands at $403 million or a solid 1.32% of loans reflecting our strong position relative to our peers.
Speaker 4: when including acquired unamortized loan discounts.
Speaker 4: Our reserve stands at 1.49% and our NPL coverage position remains strong at 356%.
Speaker 4: We've remained steadfast in our approach to consistent underwriting and managing credit risk to maintain a balanced, well-positioned portfolio throughout economic cycles.
Speaker 4: We proactively review and stress test portfolios on an ongoing basis, including in the current quarter where we performed an in-depth review of commercial real estate loans, maturing in 2023 and 2024. We were pleased with the outcome of that exercise.
Speaker 4: and did not have any risk-grading changes, which was not unexpected as we maintain a diversified commercial real estate portfolio backed by strong sponsors and low LTVs.
Speaker 4: Regarding the office portfolio, the Lincolngy remains very low at 27 basis points and criticized loans are below 10%.
Speaker 4: Our top 25 office exposures average $28 million and 43% of the loans are less than $5 million.
Speaker 4: We have and will continue to aggressively manage this portfolio on a learn-by-learn basis as part of the in-depth reviews we regularly perform.
Speaker 4: In closing, we had a successful quarter marked by the strength and favorable positioning of our credit portfolio as we continue to generate diversified loan growth in attractive markets.
Speaker 4: We closely monitor macroeconomic trends in the individual markets in our footprint, and we'll continue to manage risk proactively and aggressively as part of our core credit philosophy, which has served us well in softer economic times.
Speaker 4: I will now turn the call over to Vim's Calibri's or Chief Financial Officer for his remarks. Thanks, Gary. Morning, everyone.
Speaker 2: Today, I will focus on the first quarter's financial results, provide some color on our balance sheet management activities during the banking disruption in March and offer guidance updates for the remainder of 2023.
Speaker 2: First quarter net income available to common shareholders total 144.5 million.
Speaker 2: For 40 cents per share with record revenue contributions.
Speaker 2: per share with record revenue contributions equ Options smoothly higher expenses.
Speaker 2: and continue solid asset quality performance. Total earning assets reached an all-time high, ending in the quarter of $39.3 billion.
Speaker 2: With the 352 million quarterly increase driven by loans and leases growing, 418 million 5.6% annualized.
Speaker 2: Morsh alone increased 222 million, a 4.7% annualized, driven by the continued success of our strategy to grow high-quality loans across our diverse geographic footprint.
Speaker 2: While commercial production was slightly lighter than the fourth quarter, reflecting normal seasonality, nutrition approved and loan pipelines increased sequentially after the robust loan production last quarter.
Speaker 2: The tumor loans increase to 196 million linked quarter for 7.3% annualized.
Speaker 2: As growth in residential mortgages of 292 million, is partially offset by decreases in average direct home equity and solid amount of balances.
Speaker 2: Consumer lines of credit, indirect auto loans.
Speaker 2: Given the high rate environment, organic growth and residential mortgage for flexed customers continued preference for adjustable rate mortgages.
Speaker 2: As well as the continued success of our positions first mortgage program, both of which we currently keep in portfolio.
Speaker 2: The best import folio remains stable at $7.3 billion, with 46% classified as available for sale.
Speaker 2: When including the fair value marks in our AFS and HM4 folios, our CET-1 ratio is above the peer meeting calculated on the same basis.
Speaker 2: and we remain well capitalized.
Speaker 2: The duration of our security portfolio in March 31st is 4.5 years and inclusive of our cash position is 3.9 years.
Speaker 2: One of the positives ended the quarter at 34.2 billion to decrease the 580 million linked quarter to 1.7%. What did I do to normal first quarter seasonality? Anything to do? Thank you.
In fact, since March 8th, odds were relatively flat with a slight 0.7% decline.
to the normal outflows from wholesale and retail customer activity. This mentioned earlier are median consumer deposit balance with $5,000 at the end of March.
And looking at the total deposit portfolio, our average account balance is approximately $30,000.
which is well below Silicon Valley banks coverage of 1.1 million and signature banks 5008,000. We are also lower than our peer median as of your end.
The deposit makes midship this quarter, the time deposit increasing 1.1 billion, as customers move funds out of money market accounts to take advantage of higher CD rates.
As of March 31, our mix of non-intersparing deposits were made strong and 33% of cold deposits were found slightly from 34% in your end.
The launch deposit ratio remained at a comfortable level, ending the quarter of below 90%.
In light of the bank of industry destruction, we decided to bolster our on balance sheet and liquidity position by increasing short and long-term borrowings by about $1 billion in the aggregate.
We're getting our excess cash position to 1.3 billion at quarter end. Looking at the income statement, record quarterly revenue of 416 million with driven by net interest income totaling 337 million.
A Link-Porter increase of 1.8 million or 0.5%.
The net interest margin expanded three basis points as the earning asset yield increased 39 basis points, with long yields up 42 basis points, while the cost of funds increased 38 basis points. Ridley managing deposit costs in this rate environment continues to be a significant focus.
Spot interest bearing deposit costs end of the quarter at 171.
with the poorly averaged coming in at 150, selecting the ongoing diligent work by our team.
Total cumulative deposit rate is ended the quarter of 21.8% within our prior guidance of 20%.
deposit pages ended the quarter at 21.8% within our prior guidance of 22%.
30 to not interesting from an expense, not interesting from total 79.4 million.
A slight decrease of 1.5% in the fourth quarter of last year. Welcome management reached a record $18 million with a quarterly increase of $2.4 million, closely split between securities, commissions and fees driven by strong manuity revenue.
and trust services, primarily from strong organic growth to evenality.
Higher production and contingent revenues led to a $3.3 million or 73 percent linked quarter increase in insurance commissions and fees, while mortgage banking operations income increased $2.1 million linked quarter reflecting a 5 percent increase in sold mortgage cash volumes.
Higher production and contingent revenues led to a $3.3 million, or 73%, linked quarter increase in insurance commissions and fees, while mortgage banking operations income increased $2.1 million linked quarter, reflecting a 5% increase in sold mortgage volume and improved gain on sale margins.
Capital markets income decreased $3.2 million due to reduced syndications and swap fees from very strong levels in the fourth quarter of 2022.
Service charges in the quarter decreased $2.9 million, largely reflecting the expected decline in overdraft and non-sufficient fund charges due to our previously announced fee program changes given the current competitive environment. Operating non-interest expense totaled $218 million.
In a 11% increase from the fourth quarter, largely reflecting normal seasonality combined with the addition of the union expense base for a full quarter, and the impact of the previously announced increase in the FTIC insurance assessment rate. Valorance and employee benefits increased $17 million.
of which approximately 12 million was related to normal seasonal compensation activity.
including 6.7 million of long-term compensation and seasonally higher employer paid payroll contracts.
The remaining $5 million increase is primarily from reduced salary deferrals, even lower loan origination volumes, and the addition of the acquired green expense base.
Even with these expense items, efficiency ratio remained at a favorable level of 50.6%.
Our capital ratios and the decor and levels that are expected to be at or above pure median.
Can you book value for comment chair, was $8?
book value for comment share was $8.66 at March 31st.
An increase of 39 cents per share of 4.7 percent in December 31st, largely from the higher level earnings and the decreased impact of AOCI, which reduced the current quarter end tangible vote value by 87 cents per share compared to 99 cents cut year end.
As Vince mentioned, our TCE ratio is one of the highest in company history at 7.5%.
To demonstrate this strength of this level, a MISTI industry disruption, TCE adjusted for our HTM unrealized losses equal 6.9 percent.
which is 50 basis points higher than our peer median using reported year end level.
Let's now look at the 2023 financial objectives starting with the balance sheet.
A full-year spot base is to maintain our previous guide for loans to increase mid-single digits near over year.
Total deposits projected to end 2023 at a similar level is the December 31, 2022 spot balances, although we do expect a continued shift in the deposits mix given the current rate environment.
Full of gear and extra sync home is expected to be between 1.315 and 1.365 billion.
with the second quarter between 325 to 335 million. Our guidance currently assumes a 25-basis point rate height in May then flats to the remainder of the year.
The modest decrease in guidance from last quarter is largely related to our expectation for higher deposit data given the current banking industry environment.
At great work to come down this year is the forward curve currently is projecting that could lead to modest upside to our NII forecast.
The whole year anonymous succumbed with expected to be between 300 and 320 million.
With the slight upward revision, reflecting our first quarter of B relative to our previous guidance, second quarter is expected to be in the mid-70 million dollar range.
continued benefits from the diversified revenue strategy. Full year guidance for non-interest expense on an operating basis is 835-855 million.
Adjustment is to account for the higher first quarter expense levels, but the remaining nine months are expected to be consistent with our prior guidance. Femin-quarter non-interest expense is expected to be between 205 to 210 million. Full year provision guidance remains 55 to 85 million and is dependent on that long growth.
potential Cecil model-related builds from a software macroeconomic environment. Lastly, the expected tax rate should be between 20 and 21 percent for the full year, which does not include any investment tax credit activities that may occur. With that, I will turn the call back to this.
Our conservative business practices have positioned deaf and deaf to sustain solid performance during termions in our industry. We ended the first quarter with a strong capital position, and stable deposit base, and we are confident that we are forced to capitalize on this foundation.
EthnMees Financial Performance is directly correlated to maintaining our superior culture.
I think he was selected as a selling model bank for Omni-Channel Retail Delivery for a proprietary e-store. One of America's best banks by Forbes.
and a gratitude excellence of work.
for client service for the 12th consecutive year. We also continue to be honored for our commitment to diversity and inclusion as one of America's greatest workplaces for LGBTQ plus a best of the best company by three diversity publications.
and a woman's choice award winner for women and millennial women. At the end of these awards to the hard work and dedication of our employees, we share our commitment to our values and mission.
Thank you to our team for cultivating an environment that succeeds at creating your older value while respecting one another and winning together.
We will now be
We will now take a minute here.
We will now say I may look better but we will stop
Now begin the question and answer session.
Now begin the question and answer session. You're human and not a A on chain.
All right, that was great. Is there anything you would like to rerecord? We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys.
pause momentarily to assemble our roster.
The first question comes from Frank Scheraldi of Piper Sandler. Please go ahead.
Good morning. You mentioned the negative carry or you mentioned the additional liquidity on the balance sheet. Just wondering what the negative carry is on that. And is that a primary driver of the lower NII guide or is it more than mixed <expletive> ? I guess you now have...
They're celebrating a bit at the time, it seems. Yeah, the negative carry crank is really like 10 to maybe 10 to 15 basis points. It's not that significant because we're earning our excess cash position still at a billion three or earn four dandy on that. I think the bar was we took down around 40 or so.
It's not a big negative carry. It's just a makeshift and stuff continuing to roll, you know, getting current deposit rates.
Okay, and I'm just kind of curious. I don't know if you have this granularity there in front of you, but as you think about the makeshift that's baked into your guide, what is that sort of a school in terms of not interest bearing levels as a percentage of total deposits by the end of the year?
It comes down slightly between now and the end of the year. As you know, that's a big focus in the company. Our account acquisition strategy and lending strategy is always revolved around bringing in the operating accounts and those continued efforts to continue to bring in new accounts. During this disruption period, we actually net added accounts.
But as a matter of fact, we talk about customer primacy. What we mean by that is we're the principal operating bank or the disbursement bank for consumers and businesses. If you look at the granularity in the consumer book.
You know that we mentioned on the call in the prepared comments, right? There's, you know, that's pretty sticky.
There's not a lot of places that go to earn more on $5000. I don't know that it is impactful enough for people to move their money around. And we tend to be, that tends to be their principal operating account for us. So they are going to keep cash in there that cover items that are presented for payment. And it's where direct deposit.
gives credit to. And then on the business side, you know, as we've said historically, the concentration is 17% of the deposits that we have.
in the commercial segment. You know, a good bit of that is tied directly to services. So compensating balances where you gain an earnings credit, that sits in a non-intersparing bucket.
segment. You know, a good bit of that is tied directly to services. So, you know, compensating balances where you gain an earnings credit, that sits in a non-intersparing bucket. And, again, tends to be sticky.
because customers are using balances to pay for services versus paying cash fees. So, you know, that's all embedded into that non-interest DDA category.
So we feel pretty good about having a good solid base and at a minimum we feel we'll outperform others who may be relying on more trans action and more transient.
having a good solid base and at a minimum we feel will outperform others who may be you know relying on more transact and more transient balances.
I think it shows dangerous dreams. You look back historically, you can see it in our performance relative to other events.
And then just lastly, as a follow-up, just a question for Gary on the on credit, you know, in the. You have to talk about the average LTVs. I think it's in the office books specifically in the low 60s.
I'm guessing, you know, I assume that's largely value at origination of these loans and just wondering as you've gone through this in-depth portfolio review, what that's sort of telling you, if you can share what that's telling you about where, you know, value has moved in some of your markets in terms of the underlying property, you know, in sort of percentage terms.
Thanks. Yeah, we've updated various appraisals, Frank, on properties in that space. We've seen reductions generally speaking in the 15% to high teen range.
into the 20s. We did have one that had some leasing issues that got into the 30s, but so far at this point.
You know, that's the range that we have. We have been experiencing. And that's pretty much been across the board with the ones that we've had to update.
Okay, great. I appreciate that. And that's Frank, just to clarify, on the negative carry question, I forgot we had some portion of what we took down with two-year money at like 440. So kind of all in, the additional liquidity, which really had no negative carry, kind of all in on a flat basis.
Okay, great. I appreciate that. Thanks. And that's Frank just to clarify on the negative carry question. I forgot we had some portion of what we took down the two-year money at like 440. So kind of all-end additional liquidity which really had no negative carry kind of all-end on a flat basis. Okay, thank you.
The next question comes from Daniel Tomeo with Raymond James. Please go ahead.
Thanks. Good morning, everyone. Maybe first, you know, on the operating expense guidance, you could just give me an idea of what drove the overall outlook higher given, you know, I guess my over-architected.
with an outlook down that should drive a decline in incentive compensation. The acting comment on that can be expensive for the quarter. On an operating basis came in at 218 million. Our range from January was 210 to 215. So no, it was a million above the high end of that range.
Half of that variance was just lowered the burls, low and original population costs, lower consumer volumes, super low volumes and what we had planned. So that was kind of half of that $3 million difference. And then the rest of it was really a handful of kind of one-time items. If you look at our guidance for the second quarter, 105 to 210, that compares to a 2-18 figure. That's consistent with our original guidance.
we gave in January . In fact, in nine months, as I mentioned in my paper marks, is unchanged from what we had said before. So it's really just a combination of power fast 91 to Pearls half of it and it's one time item. So as we move forward, I think on how the year plays out, there is commission incentive cost is variable.
Depending on how much revenue we create, that will be up or down. So that is a swing item or a variable expense that will vary depending on when we call somebody. But it's really just – it was $3 million above the high end of the range, so it's not that significant. And the guidance forward, we'll manage expenses diligently as we always have. I appreciate that. Sorry, I missed your comment and the prepared remarks on the statement.
but what properties are in.
you know, what cities are urban versus suburban. Any way we could get more detail into kind of the type of city that those offices are in.
Well, I mean the majority of the larger office facilities are in the Metro cities, Daniel.
As mentioned in the remarks, I mean 43% almost half of that book is under $5 million. So they're kind of scattered in suburban markets for the most part.
But in terms of those appraisals, we had one with leasing issues in Pittsburgh that came down. We had one in the carer line that came down. So it's pretty much across the board.
Gary, just to clarify, you know, like you said, the vast majority of our CRE exposure is urban in nature. I know you said metro markets.
We cannot to finance on a long-term basis large office facilities other than our own. But, I mean, we don't, you know, we're not in that business. Right. No, with the average, with the average being $28 million, I mean, that kind of speaks to the top 25 at $28 million.
speaks to the type of properties in the locations. We have very little urban, big city center type of office properties, very little.
Our LTVs are very conservative. I think a portion of the portfolio that's in construction, fund up basically, is typically secured by leases. We don't do a lot of spec, or hardly any.
So, you know, that's backed up by loses. And the LTVs are going to be a little higher on the construction.
pieces of the portfolio versus what we have in our book because we tend not to keep large exposures. We underwrite them to a permanent take-out.
So I just want to make sure everybody understands that and made up of the numbers on this slide that we've been learning.
for known owner occupied series. Okay, thanks for that.
Lastly, just to follow up there on not on office, but I guess the macro outlook overall reserves came down in the quarter, which was a little bit surprising, but just curious on your thoughts on the driver there of reserves down and then your thoughts on the overall macro outlook, I guess, relative to last quarter.
Yeah, actually dollar reserves were not down and the reserve was down from 133 to 132, so it was down one basis point. Still at $403 million. And we used some specific reserves that I mentioned in the...
in the prepared remarks in terms of that one basis point. So, you know, we look at it as flattish. And, you know, when you include the unamortized loan discounts at 149, I mean, our reserve position compared to peers is very strong.
I think the buffer here has been 20, 25 basis points. If you look at our coverage level, Danny versus the peers, that's a significant buffer over and above where others have been carrying their reserves. Understood. I got you. What is the gauge profile here? Right.
Maybe just continuing the last line of questioning on the allowance ratio.
I mean to your point it is quite elevated compared to peers. I guess how much of a pending recession reserve is already embedded in your numbers and I guess if we do end up in a more punitive macro environment does that 25 basis point buffer kind of hold true as the rest of the group catches up or something.
it was going to be an issue for quite some time. We did not release reserves as other institutions did during that timeframe in large sums. And we looked at it from a standpoint that we wanted to maintain those reserves.
based on what we saw coming down the road. And then we get into, you know, what appears to be naturally a softer economic time frame. So we've been able to maintain those reserves. They're well within our... ...and we've been able to maintain those reserves.
are ranges of being quantitative versus qualitative, and it's an analysis that we go through each and every month. Actually, we rerun the reserve every week.
based on the changes in the portfolio week to week. So when you look at that position, we feel good about where we are.
and we're going to continue to manage it accordingly.
Okay, great. And then, Gary, one more for you, just following up on the line of questioning regarding the office book. I guess for the – you laid out 13% maturity in 23%, 11% in 24%. I guess for those loans that are coming up for kind of maturity or refi, is that a little
We just did a deep dive on every single one of those larger credits during the quarter. And we had no downgrades, as I mentioned in the remarks, around those credits. We managed them on a regular basis on a loan bond.
and the seven percent range.
So, you know, we've got that built into those particular situations. I also mentioned that, you know, LTVs generally in the 60s, naturally, some of that's going to take a hit when you have some leases roll out.
But the sponsorship is extremely strong across that book and you know we feel that it's very manageable based on the most recent review which reflected no down grades as I mentioned.
Hey, Gary. The question that came up about our reserves relative to peers, I think it's helpful to mention that our criticizing classified loan ratios are typically higher than the other banks because of our aggressive gradation. It doesn't necessarily translate.
into net charge off. So if you look at over a long period of time, FMV versus the peers, we tend to run higher, but then have lower charge off throughout the cycle. That's a function of our credit people being very aggressive and proactive in downgrading credits, which results in a higher reserve position. So the gradation really matters.
within the portfolio other institutions could delay or you know have delays in their assessment of risk and they won't see the same level of reserves until the very tail end of a crisis. So you know it should be viewed as a positive not a negative I just want to make sure everybody understands that. Am I on task here hearing? No I would agree with everything I said there. I mean we're very aggressive around the.
I'm just wondering what the dynamic is that NII benefits in both an upside and a downside scenario.
Just wondering what the dynamic is that NII benefits in both an upside and a downside scenario.
It's a spout free of the treasure. The inverted yield curve is kind of created in a unique circumstance where with the deposit rates finally moving up.
I will start to get a minute to move into this panel for the classroom. Okay, got it. And then just last for me, any thoughts around the buyback? Banks are kind of all over the place in terms of continuing it, pausing it. You guys are active in the first quarter. I'm just wondering if.
you can give any color as to what was repurchased kind of subsequent to March 8th and then what the outlook is for the buyback going forward. Well, I'd like to start out by saying if you look at our capital position relative to others, we stand out because of the limited AOCI impairment and conservative management of our investment portfolio. That would be Scott who's sitting here with us. So I think that puts us in a different position.
We're already, you know, CET1, we're already, we're bargaining, right, so we expect capital appreciation to continue to advance those capital ratios. That gives us a little bit more flexibility than others. Having said that, we're still very cautious.
Because of the environment that we're in. I'm not quite sure how things play out throughout the rest of the year. I'm a little bit cautious because I feel that we are headed into a recessionary period and we're seeing some slowing down in the economy in various sectors. So we're getting mixed signals, but because of that and we're going to proceed very cautiously.
environment that we're in. I'm not quite sure how things play out throughout the rest of the year. I'm a little bit cautious because I feel that we are headed into a recessionary period, and we're seeing some slowing down in the economy in various sectors, so getting mixed signals. Because of that, we're going to proceed very cautiously. But we do have the capacity.
to do it if we desire to do so and if it's beneficial to the shareholders. So Ben, I don't know if you want to add any call to that. Yeah, I would just say, I mean, the 10% target that we've talked about, we still think is very fulverative, but giving a little profile is how the balance sheet. So, you know, as we move forward, we've been said to expect that to kind of gradually build from here.
You know, we have capacity. I mean, we'll be thoughtful about repurchasing. We repurchased in the 13th. Once we get comfortable with the environment, we'd like to be repurchasing in the 11th, obviously. I think there's definitely interest in having some of that deployed as we go through the year. It's just going to be kind of a matter of when. And just to confirm, none of the report quarter repurchase activity happened once the market disruption started.
All people will walk. But I will say again, we're in a different position than others, fortunately. So we have options. And we'll be very careful about how we execute those options. But we do have a capacity to do it others do not. That's why you're getting mixed.
before that. But I will say again, we're in a different position than others, fortunately. So we have options. And we'll be very careful about how we execute those options, but we do have the capacity to do it others do not. That's why you're getting mixed responses.
neutral position there. The next question comes from Michael Perito with KBW. Please go ahead. Hey, good morning, guys. Thanks for taking my questions.
You guys have hit most of it. I guess just one kind of bigger picture question around one world here. I guess what?
You know, we've you guys have talked a lot about the credit side, but I guess what about in terms of the funding side I mean is there a scenario that that could impact your appetite for incremental loan growth here I mean obviously you I think in response to recent events the CD growth kind of across the industry has served you know I would imagine
That will continue to a certain extent, maybe not quite as severely as it did over the last 30 days of the quarter, but is there a scenario where the funding, if it sustains at the current beta increase in higher-cost CDGs where that could impact your appetite to book new loan growth?
will continue to a certain extent, maybe not quite as severely as it did over the last 30 days of the quarter, but is there a scenario where the funding, if it sustains, that look kind of like the current beta increase in higher-cost CDGs where that could impact your appetite to book new loan growth? Well, I think our guidance is...
pretty conservative for us, even the markets that we're in. So, and if you look at our deposit base and our liquidity position, the mix of our deposits, we have a lot of avenues to drive liquidity that still creates a scenario where it's a creative to book loans. So, I don't think we're going to be impacted like others might be. I'm not suggesting...
I think you're spot on across the industry, but that's what differentiates us again. Our conservative nature, the fact that the company's been positioned with the positive base that it has, and our conservative credit underwriting standards gives us the ability to continue to land through the cycle very selectively.
So, you know, while demand may fall off, there'll be fewer players out there looking to originate. I think, you know, the last cycle we went through, we saw it. So we may have an opportunity to increase share.
the markets that we've expanded into relative to a number of competitors. I don't see us in a position where we have to pull back.
And I've told our employees that they should be very happy that they work particularly if you're in the lending business. So while in the difficult during good times because we tend to be a little more conservative, our ability to sustain our lending activity to the cycle is real. And Gary's philosophy about credit is real.
So we stayed within a narrow band and we don't try to outgrow ourselves during proxy times and take on undue risk and during times like this, we're in the market supporting our clients and growing care. I think that's utopia for commercial banker.
I wouldn't say that's the case for everyone. As you look across the broad spectrum of banks, everyone's in a different position, but FMB is in a very sound position relative to achieving our guidance.
That's helpful, thanks. And then, you know, not to put their card in front of the horse here, but just as you guys think about that relative strength, right? And we get through these next couple quarters and, you know, maybe hopefully finally get a better idea of whether we're going into a recession or maybe fixed stabilized. What have you? I mean, haven't that translated to, I mean, I think...
One of the reasons that you guys are in this position is just because of diversity of the franchise line of business you got geography You know M&A obviously historically been a big part of achieving that diversity and this there's dislocation you guys are kind of strongly positioned here I mean what type of opportunities longer term do you think could stem from for F&B from from all this dislocation? Well, you know, I certainly think the industry is going to change. I think the landscape is going to change
because of what's done on it. You know, there will be pressure on others. As we move through this cycle, you know, we're gonna stay pretty focused on managing risk, making sure we have ample liquidity, pricing are funding appropriately, not worrying too much about growth, worrying more about margin.
as we move through this portion of the economic cycle. But I do think that there will be opportunities on the other end of it. I don't know what they are. I will tell you though, that we've also done a terrific job, our team has done a great job of building businesses from the ground up. So if you look at our non-interest income, which performed pretty well this year and.
Reflecting on the prepared comments, you know, intervention, the wealth management business, and we've had good success in insurance. We have a very granular, diversified group of businesses.
that generate the income for the company and that's largely been grown organic. So, you know, we'll continue to focus on building out our capabilities within those groups to drive the income, which is an annuity benefit to the earnings and then we're going to stay focused on our digital strategy, I think.
to add features to that and continuing to penetrate the customer base that we have and the prospects that we have in the seven states that we operate in, which are pretty good states to be in. I think that's the focus as we move forward. I'm already going over our M&A strategy. We've talked about it before.
You know, I think for now we're, you know, we're just pausing and we're going to wait to see what shakes out. I think we will come through this in a position of strength, so we'll have plenty of opportunities.
Great, no that makes sense. I appreciate you guys providing all the colors today. Thank you. Thanks, I appreciate it.
Thanks, Mark. The next question comes from Russell Gunther with Stevens. Please go ahead. Hey, good morning, guys. Hey, Russell. Just wanted to, hey, just a quick follow up. You guys mentioned the, uh, the, uh, the, uh, the, uh,
liquidity steps taken in the quarter and excess cash. Just remind us of your target level of whether it's cash assets and has that bogey changed at all in the quarter even just for the near term.
We've been managing that cash position fluidly over the last year and a half or so. I would say that we took down quite a billion dollars or so of liquidity, we brought in liquidity just given the uncertainty in the environment.
just given our conservative nature. So that was a billion we wouldn't have otherwise taken, right? So we thought that was the smart thing to do and conservative thing to do in this environment. And when we look at what we put on, so our total wholesale funding today, about $3 billion, about a third of it is two years, a third is one year, and the other third is inside of six months. So...
kind of put a ladder together and we use that kind of over time to kind of fund what we were going to create as far as the lending side. So I mean that really that billion is a reference point that you could use. That's helpful Vince, thank you. And then just a follow-up to the NII guide you mentioned the you know slight step down due to higher deposit data assumptions.
Have you guys quantified what you think the deposit data through the cycle will be? Has that increased? Do you care to put a target on that? Yeah, no, we have our quarterly targets in the slide. I would say that so far, just to remind everybody, as we have on the slide, our cumulative data for total deposits is 21.8....
at the end of the quarter. We had guided to 22, so pretty close to that. And it was, remember, 16.3 at the end of the year. So as we look ahead, we're projecting kind of mid-20s total deposit basis at the end of the second quarter.
And while the end of the year feels very far away, I mean, our current thoughts, and I'll call them thoughts for year one, will be kind of low 30s for total deposits.
as far as the cumulative data through the end of this year. That's great. Okay, Vince, I appreciate that. Last one for me, Gary, you guys have been asking about the data collection and the data collection
conservative and de-risked the portfolio in a couple of ways over the past, you know, two to three years. Do you see any opportunity or appetite for further de-risking as you look out into the environment ahead? You know, as we look at the portfolio today, Russell, naturally the...
office sector as we have been for quite some time now. And we continue to review, you know, that book on a loan by loan basis. So you know, we'll, we'll in the normal course of business, potentially, you know, move an asset or two or, or a small, small segment of them.
But we have nothing teed up at this point. Thanks, Gary. And thank you all for taking my question. Thank you very much. The next question comes from Brian Martin with JANI. Please go ahead.
I think a morning guys say most of my stuff's been answered but just a couple things maybe Vince Calibre is just on the margin I mean I guess can you talk about where the where the March margin was kind of at the steps you talked about a little bit of liquidity just kind of what's the starting point if you will for for next quarter.
Yeah, the March margin, Brian , was $349. That's kind of our entry point into the second quarter. Gotcha. Okay. And just kind of the puts and takes from here, I guess, as you look into 2Q, kind of with the guide you've given. Thank you, Brian .
So, you know, the net interest income comes down a little bit. The ratio gets affected by that kind of access to quality position.
I'm sorry, what was your second question again, Brian ? Yeah, I was just saying, just to think about that margin, the stepping point into the next quarter, 349 is the starting point, just as it ties to the guidance. I mean, I guess your expectation that that margin percentage is relatively flat from here, or just... You know, some legs are upright, and they're not working out precisely where they need
I know you talked about with rates being down you could see a little bit of a benefit, but just near term in the next quarter or two. Yeah, I think you're going to talk about that interest income. I mean it comes down a little bit from here and then with bills into the third and fourth quarter it's kind of giving, you know, earning asset growth as we move into the third and fourth quarter. I mean the margin fluctuates a lot and with the noise and the balance you get.
It's just harder to talk to the margin piece, but the net if you think of it. Okay. As far as just that excess liquidity, Vince, what's the plan? How long do you plan to keep that for a bit? Will some of it exit? Or just how are you thinking about that then?
Well, that's what I was saying. A third of it is kind of six months or less, and then the third is one year, the third is two years. So we just let that – we're not going to prepay it. Just let that naturally kind of get absorbed as we need for time. Gotcha. Okay. I missed that part. So all right. And then just the pipelines, the loan pipelines in the quarter, I missed what you guys said there on the commercial side. Maybe that was Vince as far as what – okay.
where they're at or just kind of how they're trending here? Well I think you know the pipelines are a little softer than they've been historically at the same time. I don't think that we're out as aggressively knocking on doors and I think that the demand has fallen off a little bit kind of unilaterally across the board. I will tell you that the short-term pipelines
look pretty decent, you know, our 90 days, we measure it 90 days and then beyond 90 days looks a little softer, the 90 day pipeline looks a little more solid. There's a higher percentage of fundings coming through in that pipeline, which means there's less junk in it, I think people are a little more focused. So, you know, it's a mixed bag, as I look across all of the markets. You know, some of the markets in Carolina are down, some have better pipelines. The South Carolina looks pretty good. You know, Charlotte.
looks good short-term, is probably building their long-term pipeline. Cleveland and Pittsburgh are doing okay. So it's kind of all over the board, which tells me there's a lot of caution out there in the customer base. So it's not us. It's not due to a lack of effort on the calling side. I think it's more about what the client is doing, and there's less demand from our existing customers for CapEx FEND.
at this stage in the cycle which is probably a good thing. So a little more caution in the portfolio. What we are also seeing is utilization rates are flat. No one asked that question so I'll offer it up. I think basically as we look at the C&I book, and Gary you can chime in if you'd like to.
You know, I think a lot of our customers have not been building inventories, have actually been leading inventory and, you know, moving their short-term assets to cash as we move into a slower economic period. So we're starting to see reductions in line balances. And I think after the disruption that occurred in the banking industry, a number of companies...
It gave them a heightened awareness about where they are and they took cash and basically paid down revolver debt because they're paying a much higher interest rate than they're receiving. So a lot of that's gone on over the last few months and it's a little hard to forecast out through the end of the year but I would expect us.
to be in line with our guide, but it's going to be a fight to get there, right? I would agree with the customer's position on managing inventory downward. We're pretty much seeing that across the board.
Naturally, they built up some inventory during the supply chain issues. They've moved through some of that, and with caution, ahead from an economic standpoint and a potentially slowdown there, they are very focused on their inventory positions, and I would expect that to continue to.
move down as we go forward. Perfect. Thank you for all the color and just on the new origination yields, just I don't know Gary or whomever but just kind of where are those at today on the loan front.
Go ahead, Vince. You got the specific numbers. I have generalities.
I can make a high level comment here and then any color you want to add. New loans made during the first quarter came on at $631. For comparison that was $570 in the fourth quarter and that's total, total new loans.
Gotcha. Okay, perfect. And maybe, Gary, you mentioned early on the call just the criticize level. Did you say that that was up modestly in the quarter? I think you said down year over year. Do I have that wrong as far as what criticize assets did? It was up 19 basis points, quarter over quarter, Brian .
down 55 basis points on a year-over-year basis with a with a five billion dollar larger balance sheet So, you know, they're there at near near low, low record levels You know from from a criticized standpoint still today
Okay, and just the increase, was there anything specific that kind of drove the increase or is it just a lot of things in there? Anything you would point to given all the disclosure you've added on credit?
Yeah, not really. It was kind of just general. Okay. Nothing specific. Gotcha. Okay, just the last one for me was on the capital markets revenue. I think you talked about syndications and being a little bit lower. Just any thoughts on just how that expectation would be that you see a little bit of volatility in that but it should trend higher.
as you go throughout the year? Yeah, I think if you look at how we perform this quarter, it's pretty consistent with a less robust, it's kind of our baseline performance, right? So, I think that all depends.
on how everything shakes out as we move forward. I mean, obviously, you know, on the structural side of syndications, if we're leading, if we're not leading, it's gonna depend on CapEx need, M&A activity. There's a bunch of factors that go into driving P and some in that category. I would expect some things to come up over the next few quarters that will benefit.
that area because we do have a fairly significant falling effort syndication side. And then I would also expect derivatives, you know as we move through the cycle and you see a number of companies burn through their old fixed rate program, I would expect to see them re-upping, particularly with the inversion in the yield curve. So, I mean there's hope that we can sustain or grow.
those numbers, I think that's reflected in our guide. So, you know, I actually thought they did pretty well in the first quarter, which typically seems only lower. So, I think we're good. From a wealth perspective, we're doing extraordinarily well producing new net asset values.
of growing that asset value compliance in the southeast in particular and in the mid-Atlantic. So I would expect that to continue because we've beat up staffing down there over the last few years and have better penetration. So I'm expecting that to do a little better.
in previous years in terms of organic growth.
of organic growth. That should help us in the long run.
And then mortgage, you know, there's quite a bit of uncertainty about where we're headed from a gain on sale perspective because of where rates are.
And then mortgage, there's quite a bit of uncertainty about where we're headed from a gain on sale perspective because of where rates are. But, you know, again,
You know we were new to many of the markets we have great people you know great originators and You know we're spread across a pretty vast Geography with diversification with you know lower relative share in many markets, so we should be able to Sustain that so we we feel pretty good about our guy And that yeah, no, that's all
Well, thank you for taking the questions and thanks for all the added disclosures on the Office book and the CERI book. It's very helpful. Yes, thank you. Thanks, Brian . Thanks, John . Questions? Yes. That concludes the day. I think that concludes the questions, so I want to thank everybody for participating. Thank you for your thoughtful questions. Very detailed. Thank you.
Hopefully we were able to answer You know we put out quite a bit You know so I'd recommend reading through the disclosures that we put out and thought our team did an excellent job Getting the information out the street And I'd like to thank you and thank thank our employees here and and the shareholders for standing with us And you know we're gonna. We're gonna do well as we move through this
on a relative basis, I know it because we are, we've got a great team here. So thank you for participating. Take care. We'll see you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.