Q1 2024 F.N.B. Corp Earnings Call
Good morning, everyone and welcome to the F N B first quarter 'twenty 'twenty four earnings conference call.
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At this time I'd like to turn the floor over to ease the Hardie manager of Investor Relations Ma'am. Please go ahead.
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Ease Hardie: Good morning, and welcome to the conference call, we will now turn it.
Turn it over so that we can't here's my prepared remarks that we have.
Thank you good morning, and welcome to our earnings call.
In fact, the corporation and the reports it files with the Securities and Exchange Commission.
These statements and non-GAAP financial measures.
GAAP financial measures should begin in addition to and not ethanol trying it for our reported results.
Reconciliations of GAAP to non-GAAP operating measures to the most directly comparable GAAP financial measures are included in our presentation materials and our earnings from.
Please refer to these non-GAAP and forward looking statements disclosure related materials reports and registration statements filed with the Securities and Exchange Commission and available on our corporate website.
This call will be available until Thursday April 30, and the webcast link will be posted to the about US Investor Relations section of our corporate website.
I will now turn the call over to Vince <unk>, Chairman President and CEO.
Welcome to our first quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer, and Gary Guerrieri, Our Chief Credit Officer.
That's gonna be produced a solid quarter reporting operating earnings per share of 34 cents and operating net income available to common shareholders totaling 123 million.
Our balance sheet resilience robust fee income generation strong credit results and continued progress of our clicks to brick strategy. We're at the forefront of this quarter.
Our team remains focused on balance sheet management position FNB for optimal flexibility during the volatile interest rate period.
This is evidenced by our tangible common equity ratio ending the first quarter, an all time high of 8%.
In addition, our company reported solid loan growth of 6% and deposit growth of 2% on a year over year basis.
Deposit mix remained similar to the prior quarter with favorable total deposit cost less than 2%, which is expected to remain superior spheres.
Tangible book value per share also reached a record high at $9.64, an 11% increase year over year with tangible book value growth remains a key value driver of our strategy.
F&B maintain strong levels of liquidity and an insured and non collateralized deposit coverage ratio of 162%.
Our noninterest income continues to grow reaching 87 9 million the near record level.
<unk> is the result of our geographic expansion and a decade of strategic investments in our mortgage wealth management International banking Treasury management and capital markets capabilities, including the launch of loan syndications and the F&B debt capital markets platform.
Our diversified business model has enabled noninterest income to grow 75% from 200 million into 2016 to over $350 million on an annualized basis.
We recognize the benefit of having diverse revenue stream, which complement one another during various points of the economic cycle looking.
Looking ahead, we will continue to diversify our noninterest income products and services with plans to further enhance our treasury management merchant services and payment capabilities.
This past decade also included the launch of our clicks to brick strategy that vision, along with our investments in people and infrastructure for data analytics has laid the groundwork for the success of our digital bank today as well as F. N B's increased use of AI in the future.
Let's begin with QR code enabled product boxes.
Bob from an omni channel experience with our proprietary E store.
Paired with our new common application, we can bundle products and streamline the application process, enabling customers to open 30 products with one application.
Leading efficiencies and significantly reducing the number of keystrokes for our clients.
Our strategy offers us the opportunity to align high value product solutions for our customers based upon need you in a bundled men, which helps retain and attract clients.
Ease Hardie: F N B also leverages, our investments in data infrastructure and analytics for driving revenue growth through enhanced lead generation.
Our enterprise data warehouse stores over 71 billion records across 41000 attributes.
Enabling our data scientists to utilize machine learning more effective.
We developed opportunity IQ, our proprietary tool that utilizes AI and data aggregation to produce a one page snapshot of our customers, including the lead score next best product to offer.
Overall needs.
This at a glance insight enables our employees to have elevated conversation and deepen our relationships with data driven now.
Leveraging our proprietary data and analytics in our common out we can improve product penetration through tailored offerings to our customers to increase their financial wellbeing and client loyalty to our brands.
As we continue to expand our current relationships and gain new households, F&B remained steadfast and our consistent underwriting standards.
Credit management process.
I'll now turn the call over to Gary to provide additional information on our credit risk metrics Gary.
Thank you Vince and good morning, everyone. We ended the quarter with our asset quality metrics remaining a solid level.
Total delinquency finished the quarter at 64 basis points down six bips from the prior quarter.
Mpls and Oreo decreased one basis point.
33 bps, a multiyear low.
Net charge offs of 16 basis points.
I will provide an update on our CRE portfolios and conclude with an overview of our credit risk management strategies and focus around the current environment.
Total provision expense for the quarter stood at 13.9 billion, providing for loan growth and charge offs.
Our ending funded reserve stands at $406 million or 125% of loans.
That compared to the prior quarter continuing to reflect our strong position relative to our peers.
And including acquired of Unamortized loan discounts our reserve stands at 136% and our NPL coverage position remained strong at 425% inclusive of the discounts.
We continue to closely monitor the non owner occupied CRE portfolio and on a monthly basis review upcoming maturities largest expenditures and analyze overall market performance across our footprint.
At quarter end delinquency N npls for the non owner occupied CRE portfolio improved slightly and continues to remain very low at 19, and 13 basis points respectively.
Specifically related to the non owner occupied office portfolio. Our most recent review reflected a 60% weighted average LTV, providing additional protection for a potential market declines.
Delinquency in Npls were three and two basis points, respectively outperforming the prior quarter.
Net charge offs for the non owner occupied CRE portfolio reflected solid performance for the quarter at nine basis points.
Arming, our consistent underwriting and strong sponsorship.
We remain focused on credit risk management, along with consistent underwriting, which allows us to maintain a balanced well positioned portfolio throughout various economic cycles.
On a quarterly basis, we continued to perform specific in depth reviews of our portfolios as well as full portfolio stress test.
Our stress testing results for this quarter and have again shown lower net charge offs and stable provision compared to the prior quarter's results with our current ACL covering approximately 90% of our projected charge offs and a severe economic downturn.
Confirming that our diversified loan portfolio enables us to withstand various stressed economic scenarios.
In closing our asset quality metrics ended the quarter at good levels.
Our loan portfolio continues to remain stable and benefits from proactive risk management being further enhanced by experienced banking teams and tenured leadership, which have successfully managed through many economic cycles.
We continue to see loan growth through a diversified mix of products and geographies, while maintaining our strong core credit philosophy and consistent approach to underwriting through the cycles.
I'll now turn the call over to Vince Calabrese, our Chief financial Officer for his remarks.
Thanks, Gary and good morning today I will review the first quarter's financial results walk through our second quarter and full year guidance.
Total loans and leases ended the quarter $32 6 billion three 3% annualized linked quarter increase.
Driven by growth of $209 million, and consumer loans and $53 million in commercial loans and leases.
<unk> mortgages led consumer loan growth driven by on balance sheet production, this quarter and physicians and jumbo mortgage loans.
Total deposits ended the quarter at $34 7 billion, a slight increase of 24 million linked quarter, even with the headwind of seasonal deposit outflows.
For context, our seasonal deposits peaked in mid November and trough in mid February and balance it should continue to build through the next couple of quarters benefiting from normal seasonality and our team's success driving deeper market penetration on an organic basis.
As of March 31st noninterest bearing deposits comprised 29% of total deposits maintaining the same level as year end.
While the deposit mix continues to shift from low interest checking and savings products into higher yielding CD and money market products. We believe we will continue to outperform the industry, both on mix and deposit cost perspective.
Our deposit cost ended the first quarter of 2.04% leading to a total cumulative deposit beta of 36% since the current interest rate increases began in March of 2022.
The first quarter's net interest margin was 318, a decline of only three basis points.
A 15 basis point increase in the total yield on earning assets to $5 40 with slightly more than offset by a 19 basis point increase in the total cost of funds to $2 33.
On a monthly basis net interest margin was down a modest one basis point per month during the first quarter and march's net interest margin was $3 17.
Net interest income totaled $319 million or $5 million decrease from the prior quarter with over half the difference due to the current quarter, having one less day.
Turning to noninterest income and expense noninterest income totaled a robust $87 9 million with linked quarter growth in nearly every line of business.
Wealth management revenues increased 12% compared to the prior quarter, reaching a record $19 6 million through continued strong contributions across the geographic footprint.
Mortgage banking operations totaled $7 9 million the highest quarterly figure since 2021 with our focus on the purchase market driving good production growth.
Some of the lines of business as Vince mentioned had strong performance this quarter, our debt capital markets platform, which is part of capital markets had a record number of bond transactions this quarter and more than double the prior record.
Hershey management revenues have gained momentum as we execute on our strategic initiatives building out the platform with total TM revenues, increasing around 19% from the year ago quarter driving the increase in the service charge line item.
Operating noninterest expense totaled $234 1 million, an increase of $15 2 million from the prior quarter after adjusting for $3 million of significant items in the current quarter and $46 6 million last quarter.
This quarter significant items included $1 2 million of branch consolidation expenses and $4 4 million estimated for the additional FDIC special assessment.
She offset by $2 $6 million reduction to the previously estimated loss on the indirect auto loan sale that closed in February.
The largest driver for operating noninterest expense with salaries and employee benefits, which increased $15 million primarily related to normal seasonal long term compensation expense.
$6 9 million seasonally higher employer paid payroll taxes, which increased $4 6 million and reduced salary deferrals, given seasonally lower loan origination volumes.
As previously mentioned F&B redeemed all of our outstanding series E. Perpetual preferred stock on February 15, and paid the final preferred dividend 2 million on the redemption date.
The excess of the redemption value over the carrying value on the preferred stock of $4 million was considered a significant item impacting earnings.
F N B continues to actively manage our capital position for ample flexibility to grow the balance sheet and optimize shareholder returns while appropriately managing risk.
Our financial performance capital management strategy resulted in our TCE ratio, reaching 8%.
CET one ratio of 10, 2% below its record levels.
Tangible book value per common share was 964 at March 31, an increase of 98 cents or 11, 3% compared to March 31 2023.
Ease Hardie: <unk> reduced the tangible book value per common share by 70 cents as of quarter end compared to 87 for the year.
Year ago quarter.
Let's now look at guidance for the second quarter and full year of 2024.
We are maintaining our full year balance sheet guidance, we project period, ending loans to grow mid single digits on a full year basis, as we increase our market share across our diverse geographic footprint.
And total projected deposit balances are expected to grow low single digits on a year over year spot basis.
Overall, our projected full year income statement guidance consistent with last quarter with some additional thoughts on where we expect to land within the provided ranges.
Our projected full year net interest income is still expected to be between one point to 95, and 1.345 billion, assuming 225 basis point rate cuts occurring in the latter half of 2024.
Our current expectation is to be in the lower half of our full year guide given those two rate cuts, but where we ultimately end up in the range may change due to the fluidity of the rate environment and the number and timing of interest rate cuts that actually occur.
Second quarter net interest income is projected between 315 and $325 million.
The noninterest income full year guide remains between $325 million to $345 million. However, given the strong momentum in the first quarter, we anticipate being in the upper half of that range.
The second quarter noninterest income guide between 80 and $85 million.
Full year guidance for noninterest expense is expected to be between 895 and $915 million with the second quarter noninterest expense expected to be between 220 $230 million.
Full year provision guidance is $80 million to $100 million and is dependent on that loan growth and charge off activity.
Lastly, the full year effective tax rate should be between 21, and 22%, which does not assume any investment tax credit activity that may occur.
With that I will turn the call back to Vince.
F&B had a good start to the year.
And we are optimistic that as we entered the second half of the year, we have the potential to return to positive operating leverage and benefit from a more favorable interest rate environment as well as a growing pipeline for loans and deposits.
Our award winning client experience is shaped by our digital technology in the store and we are proud to appear amongst some of the nation's largest banks as a finalist for a fin Tech award for innovation and customer experience. Our strategy is consistently supported by third party recognition.
In fact, we received approximately 30 awards for our client service financial performance and culture. During the first quarter alone with multiple awards received in 2020 were for small business and middle market Excellence.
These select examples of F&B third party recognition highlights the strength of our business model and financial achievements, which led to F&B being named by S&P Global market Intelligence is one of the top 50, performing U S public banks.
The ongoing recognition our company receives is made possible by our engaged teams, we provide an environment, where everyone has an opportunity to excel.
And as a result F N b as a top workplace USA for the fourth consecutive year based upon employee feedback.
Our employees dedication enables us to serve all of our stakeholders and physicians F&B for continued success.
Want to thank the team for their outstanding efforts in the first quarter, given the difficult operating environment and I look forward to working together to build on our momentum throughout the year.
Ladies and gentlemen at this time, we'll begin the question and answer session.
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At this time, we will pause momentarily to assemble the roster.
And our first question today comes from.
Surely from Piper Sandler. Please go ahead with your question.
Good morning.
Just the right.
On the NII well on the NII guide and also on the the loan to deposit ratio I think in the past you've talked about.
As you get up to you know.
Piper Sandler: 90, 596%.
Taking some some potential actions to help mitigate getting up to 100% loan to deposit ratio and so you know I know.
There's some.
Seasonality on the deposit side.
But just curious maybe if you could talk about what some of those actions.
Might be I know you had the indirect sale.
Indirect auto sale, which I guess helped a bit.
But just curious if you could talk about what some of those potential actions might look like and then also just remind us of.
Of what you get on a 25 basis point.
Cut.
And interest rates.
Okay.
So I would say on the loss ratio we.
Historically talk about 97% is kind of a level, where I don't know.
We've taken action in <unk>.
<unk> was no leveraging our franchise we have to generate.
And that has happened we generate close to $1 billion in Cds bring it back down.
So.
The 100 is there is a line, but 97 is a line that we would kind of mad once we got close to that.
To manage that down and there's a lot of things. We can do I mean as you know we have a big focus on generating deposits demand deposits throughout the company.
Our traditional commercial business is treasury management small business, it's a focus throughout the company. It's always been so generating additional deposits, bringing in new households, new customer.
Clients can keep part of it.
Then also things like managing that well.
We've adjusted our pricing strategy kind of midyear last year.
More sellable product.
Out of our originations and what we've had before and now we're up in the mid Forty's first salvo percentage, where we were and long into 'twenty. So that's another lever we have in the indirect business, while we get a sale. We also have a lever there as far as how much we want to grow at a point in time, depending on kind of what's that shelf space on the balance sheet. There are a whole list of things.
If we look at.
Piper Sandler: Asset and liability.
So I you know there is there is it.
Vince mentioned that many of them I think our pipeline.
New production is pretty strong.
From a deposit perspective, so I don't think that we're worried.
How about that.
But obviously in the event that we need to generate deposits pricing.
Pricing mechanisms that we deploy.
We prefer to grow organically.
And bring in a balanced mix of deposits that are accretive.
Now that is going very well for the companies.
Great.
And then just yeah, just on the NII side, I mean, I guess, you have one less rate cut baked into your expectations, now, but but guiding towards the lower half of the previous range.
Is that just given where you sit in the first quarter and then the trends from here or I guess that would be oh.
Assume you still pick up a little bit potentially.
From less rate cuts.
Baked into your guide so just.
I'm just curious the driver there.
And you answered it pretty well actually so [laughter] another key drivers I mean in our guidance in January we had three cuts one of them was December So December falloff, which doesn't have much of an impact on a full year or so.
As we have in the second half of the year, New short term is positive.
The Guy who we adjusted in the first quarter, we weren't lower end of our range for net interest income.
The timing of our seasonal deposits average borrowings are a little higher just because of the timing of that but at the end of the quarter, we were back to flat.
Flat up a little bit.
So it kind of just capturing that first quarter as we look ahead and now there's we'll see more of an interest rate environment is very fluid.
There's potential for us to beat that if the loan growth is stronger.
Kind of what's baked in there there's opportunity for us to be above that but just kind of where we sit how we started the year. We thought it was appropriate to kind of guy and it's the bottom half at the bottom of the ranges, it's kind of a lower half of the range as well.
Got it.
Right, Okay, and then just.
So to confirm there you'd be.
The third rate cut was was late in the year really didn't so going from three to two rate cuts really just doesn't have an impact given the timing of the.
Rate cuts.
Alright.
Great. Thank you.
Thanks, Brian.
Our next question comes from Daniel Tamayo from Raymond James. Please go ahead with your question.
Thanks, Good morning, guys.
I guess.
First just wanted to dig into the the office loans I. Appreciate the detail you guys gave there.
Looked like the.
And you touched on in your comments the delinquency in the Mpls.
For the office loans came down in the quarter.
I guess first I was just.
Wondering if there was anything in particular that happened that that drove that there were sales or or or what and then.
Just curious on the on the small increase in the criticized portion of the office loans. If theres any other details you can provide there. Thanks.
Yeah Daniel.
The.
Slight increase was really one one credit that we moved into.
Into that category at.
At this point, it's not a concern for us.
Its a credit that is extended out already another five years.
It was originally underwritten.
52% LTV and its fixed through a swap at four 5%. So they had one tenant move out there working on replacing that but we felt it appropriate that led to two.
The place that you know.
A rated credit situation the L. T V. On it was like I said right at or right at about 50% going into so so that increase that 9% criticized too right right around 11.
And in terms of in terms of the portfolio.
The portfolio.
In office was down $37 million in exposure and down 15 million from a balance perspective.
We have seen some loans pay off.
In that category as we're managing that book of business.
You know with the performance of it.
Where we sit today at those very low levels, we will continue to be aggressive around it and manage it appropriately.
Okay, that's great color I appreciate that.
And then and then maybe Vince.
The swaps that you have in place that are.
We're going to impact 2025, just curious if you could provide a little color on on how much impact do you expect those are rolling off to potentially have on the margin in 2025.
Yeah.
Yeah.
The $1 billion.
Two of swaps, we have though mature throughout 'twenty, five 4 billion actually within 25 boroughs.
So those are never received rates are around 75 basis points to one right.
Yeah, we put those on a while ago, let's say, we didn't do a lot of it but we had some of that but we did put on them. So that negative drag will come off really starting in January. It was $2 50 that comes off in January and then the rest of them by October the rest of the 1 billion kind of rolls off so it.
That'll be attitude.
Can't do that math in my head.
Its next year.
Got it okay. So a 250 in January and then the last $1 billion in October.
That's it for me I appreciate the color. Thank you.
Yeah.
Thank you Jim.
Piper Sandler: And our next question comes from Kelly Motta from <unk>. Please go ahead with your question.
Hi, good morning, Thanks for the question.
I am sorry.
I was hoping you could dig in a bit more into your fee guidance on how you you, notably he took that to the upper half of the range I'm, just wondering which areas have.
Have been performing a bit better than maybe you had expected at this time last quarter.
And where do you see the greatest opportunities.
Piper Sandler: Okay.
Pick up on some nice diversification in and help with the cross.
Yeah, you hit the nail on the head diversification is your answer.
We built out a pretty broad set of fee based businesses over the last decade.
Capital markets I mentioned in the prepared comments we added.
Debt capital markets platform. So we could participate in bond economics for some of our larger.
And as you know the capital market is opened up and there was quite a bit of activity. There in the first quarter. So we benefited from that business unit.
We built out few years ago.
Syndications ebbs and flows but as the pipelines build our pipelines are up about 15%.
I would expect there to be more syndications activity as we move through the latter half of the year. So we'll get some benefit there we have a pretty robust derivatives, well grandma rehab structuring names in the marketplace that divide.
Council to clients and help them address interest rate risks.
That particular group did did pretty well this quarter. So surprisingly given the rate environment. They were able to do some interesting things for clients to help them as we move through this volatile rate cycle. The mortgage company one of the strategies. We mentioned this kind of goes back to Frank's or all of these.
Comment about the balance sheet, and how we manage our balance sheet.
Posit ratios, but we became much more aggressive on salable mortgage loan pricing, we gave up a little bit of margin, but quite a bit off the balance sheet. So theyre contributing from a pure volume perspective, because we're positioned in some very attractive markets.
You see a lot of purchase money activity, where in our legacy markets Theres not a lot of inventory. So we're not seeing a lot of action, but in the other markets in the southeast and mid Atlantic regions, we've seen quite.
Quite a bit of pick up so that's contributed.
SBA had a very solid quarter.
Some of the loans that we originated.
Higher yields in the construction.
They were built basically based on building something our had construction costs associated with them that.
It became saleable so.
Some of that off with a decent.
And then you know the Treasury management business that we've been talking about we've received a lot of Greenwich Awards for Treasury management over the last few years and the.
Small business and middle market segments. In particular, we continue to build out that business unit. We've added personnel, we built out our merchant services business. So we're getting nice contributions from merchant.
And kind of the strategy here was to offset the consumer piece that we see declining like overdraft fees and other fees with higher value east for customers for Mark.
But we we kind of focused on building that out Treasury management perspective, and then going after small businesses. We have you know 90 to 100000 small businesses in our portfolio, we have a tremendous opportunity to go in and drive a broader relationship through the E store. So we're now focusing on building out of bundle.
Product for small business that will include Treasury management and merchant as part of the bundle. So those are the things that.
I mean, there's a lot of work that goes into it we've got quite a bit of granularity.
Piper Sandler: It gives us confidence that we can hit the upper end of the range on the guide I think it's 350 <unk> right.
So yeah, there was an annualizing the first quarter, which you know usually the first quarter's weak weaker than others.
No.
Piper Sandler: We're pleased with what we said.
Got it.
No I really appreciate all the color. Thank you. So much maybe a last question for me switching them back to the balance sheet is on deposits. It seems like if I'm reading your prepared commentary correctly.
Some of the kind of qualification to NII to lower half of the range has to do with.
You were seeing on the on the deposit flow side. So can you remind me the seasonality you have with deposits and.
Is there any color you can provide as to the.
Cadence of what you're thinking about in terms of customer.
Customer deposit growth to get to that low single digit.
Range that you reiterated.
Yes, I think first of all I know.
There is an extreme amount of seasonality within the awesome work.
So it's kind of difficult to look at the first quarter in broth.
The outflows and inflows are occurring throughout the quarter and really it starts to build now so we're starting to see considerable.
The demand deposits were pretty steady at about 29% on a quarter over quarter basis.
So.
Imagine that's the core of our profitability is basically maintaining those noninterest bearing deposits what's happened over the last few quarters as we've seen some of the.
Higher priced deposit categories moving into Cds are moving into something with a little bit of terms within the customer base. So that's eroded a little bit of a net interest income right. We saw that happen that's not surprising.
At any escalation in Vegas.
I believe that over time.
This year, we should be able.
Piper Sandler: To manage the noninterest bearing deposit balances in that range in and grow the other categories without sacrificing margin because we've seen.
Some lower pricing stick in the marketplace, we don't have to be as hot on the pricing. So I think that should help us as we move through the rest of the year and then also the inflows occur.
In many instances even with the municipal deposits. This is <expletive>.
Just about all of them, we don't do those transactions with municipalities to just yet.
Balances.
And I have a rule here, where we have to be the primary disbursement day, one of those entities and what ends up happening is the increased activity with HTH activity in wire activity.
And the movement of funds, increasing the amount of free balances grow to cover those services. So.
That's part of what happens over the course of the next three quarters as well.
What that.
I don't know if you want to add anything on the timing.
I really actually.
Piper Sandler: We commented on it kind of trough in mid February and builds through October November kind of that.
The cadence of that that's all I would add.
Yeah.
Thank you so much I appreciate the color I'll step back.
Thank you. Thank you.
Even once again at this point if you'd like to ask a question. Please press star and one two it's all your questions you May press star and two.
Next we have Nick Lorenzo need from Stephens. Please go ahead with your question.
Yeah.
Hey, good morning, guys filling in for Russell Gunther I just had a quick question with regard to your office portfolio I. Appreciate the color of the deck I was wondering if you could provide some additional detail on the geographic breakdown, including specific office exposure in your D C and Baltimore markets.
Yes in terms of in terms of the exposure in D C.
We have.
Essentially.
<unk>.
One transaction in the D C market.
We had we had a few on top of that over the last year, we've been able to move those off the balance sheet just in the normal course of refinance at other institutions.
We only have one transaction there.
The transaction is a $20 million.
Hum.
That's a market that.
Piper Sandler: We saw quite a while ago that we felt was extremely overheated.
So we were very cautious going into.
Into that market.
But we're pleased with where we sit today with very very little.
Yeah.
Speaker Change: Okay, great. Thank you for taking my questions.
Speaker Change: And our next question comes from Brian Martin from Janney Montgomery. Please go ahead with your question.
Hey, good morning.
Hey, Brian Hey, Brian Hey, just.
A couple of maybe Gary just one for you on the credit side just in terms of.
Overall trends in criticized and classified levels can.
Can you give any just broad.
Characterization of how trends went this quarter just before we see the.
<unk> 10-Q filing.
How those trends were for the whole portfolio rather than just the specific bucket.
Yes in terms in terms of the criticized.
Trends there.
We're up slightly.
Well, how about less less than that less than seven or eight credits in the criticized we got a couple of move into the substandard I touched on one of them earlier Brian.
Those credits.
They were from just some slight softer performance, we're very aggressive in moving those type of credits.
Brad it's into a special mentioned category, which was primarily where where the movement was and we don't have any concerns with any of those credits that moved into there from from a loss perspective.
Long term customers, just a little softer performance.
And so we build a little bit of a reserve against that software performance, we expect that the turnarounds over the next six to 12 months.
Those particular movements and Brian I have a tremendous amount of confidence in Gary and his team I can tell you.
Speaker Change: As we look at the portfolio varies on top of the credits as people were on top of the credits the line looks at these credits and they they downgrade them.
Necessary very quickly.
It's different than what you'll find at other companies. So you know youre going to see movement I.
I think it's positive because it keeps.
Gives us.
Well reserved relative to risk. So I think as you look over long periods of time and Gary has been in the seat for a long time to go back a long time.
14 15 years.
Maybe longer.
The bank I'm 15, I'm getting old is 15 years. So you were there 15 years.
Yes, we're all fibers. So you've got a long track record look at delinquencies are are surprisingly low.
At historical lows, the overall quality of the portfolio appears to be.
Good.
Speaker Change: We are focusing on certain segments that we believe globally are soft you mentioned office. That's one area. We look at we focused on but thank goodness, we have tremendous granularity and.
<unk>.
Credit credit culture that encourages prompt action and I think thats, what youre seeing there was a slide we presented in.
In the past I don't know if it's in the deck.
Charge offs versus reserve build for US we tend to be very early reserving and then our charge offs ended up better than the peers. So that's a testament to Gary and his team in getting out early addressing situations. Early helps you get out of trouble so that you're not experiencing.
P&C net charge offs download waiting and not addressing issues creates a shortfall, which exacerbates credit problems. When you are in a cycle.
Speaker Change: I don't know I think we've done a great job he won't say that but I'm going to say about it.
No I appreciate that the numbers speak for themselves in theory, and Gary I mean, they're great and even the criticized not being up much is testimony to the portfolio. The granularity. So just trying to stay in front of it. If there is things that are coming down the pipe.
You mentioned that the stress testing was there anything specific you guys stress tested this quarter that you would call out or just in general can you just continue to stress test the entire portfolio.
Yeah. It's it's it's a general stress test of the entire portfolio on a loan level basis, Brian. So it is a really deep dive every quarter that Tom Fischer and his team.
Undertake we review that every every quarter updates are made on a monthly basis when necessary. So it keeps us it keeps us forward looking from that perspective, and I think it's a best practice that we put into place. It has been very beneficial as we look forward.
Rudy.
Demand and what we expect down the road.
Gotcha, Okay. Thanks, and then maybe just one or two other things just on the the two.
Two things on the loan side, just maybe just kind of how the pipelines.
The guidance for the year, just kind of just trying to get a feel for where the pipelines are today on the commercial side, primarily and then just I think you mentioned on the mortgage side you were a bit more aggressive on the sales I mean first quarter is typically.
Seasonally weaker quarter. So do you expect to remain aggressive on on the sales, which could mean that potentially <unk> as a bottom for the mortgage revenues as you look throughout the year or is it any different than the strategy. There as you go to the balance of the year.
Yeah, I think the.
First quarter typically is seasonally slow right because there are less especially when we're focusing on purchase money mortgage loans because of the fewer transactions that occurred in the first quarter I would expect that the bill through the next two quarters and then come back down again.
Just speaking to the purchase money side, forming mortgage loans I would expect that to happen there are other.
Origination areas that will produce through that we have positions loans that we do which are pretty much throughout the year.
On the warming up so you'll see more jumbo private banking loans coming online, which is why we do what we do we want to balance out what goes on the balance sheet and you know what become stale.
Our team has done a great job, we have terrific people in the mortgage business, we've grown it over the last 10 years or so I mean, that's.
A big part of our business and a key product.
Consumer so it really adds to our ability to obtain clients and I think we're going to continue to focus on it and manage it very conservatively, but I would expect that to.
More of them in the next few quarters I think it's fair to say given the seasonality.
And I would just add from an income statement standpoint, and baked into our guidance as the mortgage banking income come down a little bit from the first quarter level.
I was gonna be a function of how much we do sell right.
We'll continue to manage it like Vincent seasonally second and third quarter.
Quite a big loss in production, which is what's baked into our.
Into our guidance that falls out.
So fourth quarter.
The belt bell shaped, but.
I'm pretty optimistic I think they're doing pretty well and we're very well entrenched with great people and.
And that business like I said.
Good about it.
And the activity is very good even in the first quarter was very good too.
I expect it to Susan will move up in the second third.
Okay, obviously impacted by interest.
Right I mean that.
<unk> go up.
Game over.
We will talk about it down the road, but I think given the way things are today and it is stable.
This rate environment.
So now.
Speaker Change: They should pick up there should be more activity.
C.
Okay got it and just and then on the commercial pipeline, how what Youre seeing there.
Yes, the pipelines, they're up 15%.
The overall pipeline is up from the last quarter remember, we had a big quarter.
Closing out in December of last year. So the fourth quarter last year was pretty solid with respect. So pipelines are rebuilding south Carolina's if their second highest level. Historically, so there's a lot of activity there Raul He's got a nice pipeline.
What we call the capital region, which is a central part of the state has a tremendous pipeline.
And we've seen some good activity in some of the wall, Pennsylvania markets.
And State College, Tony Mark <unk>, and his team doing a terrific job.
I mean, we're seeing a lot of activity.
And good solid middle market C&I opportunities.
I would expect us to continue to build the pipelines as we move through the year end businesses hopefully.
More confidence.
And the economy.
Gotcha, Okay and last one for me and I'll step back with just the it sounds like the DVA level, you're comfortable that you can maybe sustain this around the current level and then just kind of.
The outlook on the capital flexibility with kind of reaching a record level of TCE and CET, one just kind of your thoughts on capital.
Capital deployment here, if it still is primarily organic growth.
Yeah, I would say.
The capital front, we still like 10% is our CET one target. We think that's the right level just given our risk profile of the balance sheet and also the higher level of capital generation producing.
If you look at our what's baked into our guidance the capital ratios kind of gradually build from here between now and the end of the year.
You saw this quarter, we had a nice pick up in Q1 TCE ratio and we've commented in January that once the indirect sale kind of cleared that would be additive that are like 10 basis points.
So we have that and then with kind of gradually build from there and we'll be opportunistic as we have been in the past.
We looked at what.
Once we do some buybacks you know we have issuance of stock in the first quarter from normal incentive style, we could repurchase some of that in.
You.
There's some level of activity as we go through the year given the profitability of the company we have options.
And we're building capital.
When you go back pretty far so 8% is a pretty nice number for us.
It's a solid TCE.
Speaker Change: Yes.
Speaker Change: Got you Okay. I appreciate you taking the questions. Thank you.
Speaker Change: Thank you.
Take care.
Yeah.
And ladies and gentlemen, with that being our last question I'd like to turn the floor back over to Vince to Lee for any closing remarks.
I just wanted to make one comment there was a question earlier about the swaps we have rolling off next year.
I mentioned kind of what we're seeing and we're paying $5 44 on that doesn't dollars. So just as far as the math as you get into 2025, it's basically $2 50, a quarter and a sub 1%, while receiving and we're paying around 544, so that'll be a benefit next year starting in January just wanted to clarify that.
Yeah.
Thanks James.
Speaker Change: Thank you everybody appreciate it appreciate the support from our shareholders and again.
Very appreciative of our employees and the teams that we have and their desire to win.
So we have a great culture, a winning culture and people just want to do the best they can for their clients and compete and I think we've proven that.
We do that very effectively so thank you.
Thank you everybody.
Alright.
And ladies and gentlemen, with that we'll conclude today's conference call and presentation. We do thank you for joining you may now disconnect your lines.