Q4 2024 F.N.B. Corp Earnings Call
Speaker Change: Good morning, everyone, and welcome to the FMB Fourth Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please send to a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and one on a touchtone telephone. To withdraw your questions, you may press star and two.
Please also note today's event is being recorded.
Speaker Change: At this time, I'd like to turn the floor over to Lisa Hajdu, Manager, Investor Relations. Ma'am, please go ahead.
Speaker Change: Good morning and welcome to our earnings call. This conference call of F&B 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 as an alternative for our reported results prepared in accordance with GAAP.
Speaker Change: Reconciliations of GAAP to non-GAAP operating measures to the most comparable GAAP financial measures are included in our presentation materials and in our earnings release.
Speaker Change: Please report to these non-GAAP and forward-looking statement disclosures contained in our related materials, reports, and registration statements filed with the Securities and Exchange Commission and available on our corporate website.
Speaker Change: A replay of this call will be available until Wednesday, January 29, and the webcast link will be posted to the About Us Investor Relations section of our corporate website.
Speaker Change: I will now turn the call over to Vince Delie, Chairman, President, and CEO.
Speaker Change: Thank you and welcome to our fourth quarter earnings call. Joining me today are Vince Calabrese, our Chief Financial Officer, and Gary Guerrieri, our Chief Credit Officer.
Speaker Change: FMB reported fourth quarter operating net income available to common shareholders of $136.7 million or 38 cents per diluted common share.
Speaker Change: This brings our full year 2024 Operating EPS to $1.39, reflecting the successful execution of our strategic objectives.
Speaker Change: In 2024, F&B generated year-over-year loan growth of 5% and robust deposit growth of 6.9%.
Speaker Change: These results occurred throughout our diverse geographic footprint, materially outpacing the industry as we continue to leverage the strength of our technology, balance sheet, and capital base, as well as our team of frontline bankers.
Speaker Change: Non-interest income continues to grow, achieving yet another record level of $350 million, highlighting our diversified business model and robust suite of products and services.
Speaker Change: We further strengthened our balance sheet and achieved a record CET1 ratio of 10.6%, an increased tangible book value per share 11%, to a record of $10.49.
Speaker Change: F&B remains focused on optimizing our balance sheet to drive shareholder value and best position the company for future success.
Speaker Change: As part of that commitment, we recently completed the sale of approximately $231 million of available-for-sale securities, yielding 1.41 percent, and reinvested the proceeds into securities yielding 4.78 percent.
A 337 basis point improvement.
with a similar duration and convexity profile.
Speaker Change: FMB also issued $500 million of senior debt in December and received favorable execution relative to similar issuances by peers.
Speaker Change: signifying the confidence that fixed income markets have in F&B's sustained profitability, credit quality, and overall balance sheet strength.
Speaker Change: F&B has demonstrated tremendous success building a valuable deposit franchise with superior market share throughout our footprint and robust physical and digital tools.
Speaker Change: We now hold the top 5 deposit share in 50% of our markets and top 10 deposit share in over 80%.
Speaker Change: Deposits ended the year at $37.1 billion, an increase of $2.4 billion from the prior year. We continue our focus on growing deposits while managing the overall cost of funds.
Speaker Change: In the fourth quarter, deposits increased $336 million link quarter, with total deposit costs at 2.2%, which is expected to meaningfully outperform peers.
We continue to build out our technology to assist consumers.
Speaker Change: F&B recently invested in a FinTech which provides technology that will be embedded into the eStore to enable our customers to instantaneously move their direct deposit and reoccurring transactions to F&B.
Speaker Change: We expect an improved onboarding process with fewer obstacles to drive greater success at becoming our customers primary bank.
Speaker Change: F&B's strong loan and deposit growth in 2024 outpaced the industry based on the H-8 data, more than doubling the large banks and more than tripling small banks' full-year growth.
Speaker Change: The strategic investments in our delivery channel have created the opportunity to deepen customer relationships.
gain market share and further outperform our competitors.
Speaker Change: December marked the one-year anniversary of introducing deposits into the eStore common application, allowing customers to apply for up to 30 consumer loan and deposit products simultaneously.
Speaker Change: We are seeing impressive adoption, for example, since the launch of the eStore Common app and when comparing volume to pre-launch levels over the same period.
Average monthly consumer loan application volume is up 41 percent.
Speaker Change: and average monthly consumer deposit application volume is up nearly 30 percent.
Speaker Change: In addition to the functionality gained from our FinTech partner, additional enhancements to the eStore are scheduled for 2025.
Speaker Change: including features for insurance, small business, and middle market commercial banking, providing new growth opportunities and continuing our momentum in non-interest income, which reached an all-time high of $350 million in 2024.
We recognize the benefit of having diverse revenue streams.
Speaker Change: And we will continue to invest in products and services to increase non-interest income, as well as relationship-based deposits.
Speaker Change: Our team has had great success identifying and introducing new high value business units that complement our existing products and services.
Speaker Change: During the last 10 years, our wholesale and consumer banking groups have established or significantly expanded eight business lines
Speaker Change: that are now multi-million dollar revenue generators, providing us with high returns on investment and additional granularity in our fee income composition.
Speaker Change: In the face of continuously reducing consumer banking fees, these new products and offerings have contributed to a 10-year compounded annual growth rate of more than 9% for non-interest income, while creating additional value for our clients.
Speaker Change: I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: Looking forward to this year, FMB is expanding our capital markets offerings to include commodities hedging, public finance, and commercial investment banking services, with plans to further enhance fee-based business products for treasury management, merchant services, and payment capabilities.
Speaker Change: As we continue to grow and expand FMV, it is vital that we maintain a durable and scalable infrastructure that can be leveraged both as a competitive advantage and to meet regulatory requirements.
Speaker Change: Our comprehensive risk framework is a key consideration in executing our business strategies.
Speaker Change: This year, F&B has taken steps to strengthen internal processes, risk management, and government practices, as well as introduce automation to increase efficiency, reduce fraud, and create cost savings.
Speaker Change: We are leveraging our data infrastructure and technology investments to build out automation and dynamic scorecard reporting for a variety of our operational units that will enable us to drive productivity enhancements in real time.
Speaker Change: We believe this step is necessary to fully engage software automation as we move into the future and continue to drive efficiency.
Speaker Change: F&B's approach to credit risk, a component of overall risk management, has provided strong and stable asset quality that has outperformed peers through various economic cycles.
Speaker Change: Our credit performance was solid in what has been a shifting economic environment.
Speaker Change: I will now turn the call over to Gary, who will provide a review of overall credit performance. Gary?
Gary Guerrieri: Thank you, Vince, and good morning, everyone. We ended the quarter and year-end period with our asset quality metrics remaining at stable levels.
Gary Guerrieri: Total delinquency ended the quarter at 83 basis points, up 4 bps from the prior quarter, with NPLs and Oreo at 48 basis points, up 9 bps.
Gary Guerrieri: Net charge-offs totaled 24 basis points and 19 basis points for the year, reflecting solid performance in the current economic environment.
Gary Guerrieri: Criticized loans were down 27 bips on a linked quarter basis, reflecting continued improvement across the portfolio.
Gary Guerrieri: Total funded provision expense for the quarter stood at $23.2 million, supporting loan growth and covering charge-offs.
Gary Guerrieri: Our ending funded reserve stands at $423 million, an increase of $2.6 million, ending at 1.25%, unchanged from the prior quarter.
Gary Guerrieri: When including Acquired Unamortized Loan Discounts, our reserve stands at 1.34% and our NPL coverage position remains strong at 285% inclusive of the discounts.
Gary Guerrieri: The non-owner CRE portfolio credit metrics continue to remain at satisfactory levels with delinquency and NPLs at 99 and 84 basis points respectively.
Gary Guerrieri: Throughout 2024, we reviewed approximately $1.8 billion of the non-owner CRE portfolio that had matured or was in the process of maturing, with approximately $600 million completed in the current quarter.
Gary Guerrieri: Additionally, approximately two billion of the non-owner CRE portfolio was reviewed in the quarter through our ongoing loan risk rating assessment process.
Gary Guerrieri: We are pleased with the outcome of the reviews, with a slight reduction in criticized loans.
Gary Guerrieri: We also took aggressive action on certain credits that should position a portfolio well going into the year.
Gary Guerrieri: As part of this proactive approach to managing credit risk, we reduced the non-owner CRE portfolio exposure by approximately $300 million in the quarter, ending the year at 220% of total risk-based capital.
Gary Guerrieri: We continue to perform targeted reviews of other portfolios each quarter, along with a full portfolio stress test.
Gary Guerrieri: Our stress testing results for this quarter have been consistent with prior quarters, with our current ACL covering over 90% of our projected charge-offs in a severe economic downturn.
Gary Guerrieri: including in the recent quarter where we applied an additional shock on non-owner-occupied CRE.
Gary Guerrieri: In closing, our credit metrics ended the year at solid levels, with our loan portfolio continuing to perform as expected in the current economic environment.
Gary Guerrieri: Our ongoing investments in credit risk management systems, analytics, and staff allow us to quickly identify risk and take proactive actions.
Gary Guerrieri: We look forward to achieving prudent loan growth in the year ahead while remaining consistent in our core underwriting and credit philosophy.
Gary Guerrieri: I will now turn the call over to Vince Calabrese, our Chief Financial Officer, for his remarks.
For more information visit www.casagrandeaz.gov
Gary Guerrieri: Thanks, Gary, and good morning. Today I will focus on the fourth quarter's financial results, including details on the investment securities restructuring completed in November, the debt issuance, and the Renewable Energy Investment Tax Credit financing transaction.
Gary Guerrieri: as well as walking through our guidance for the first quarter and full year of 2025.
Gary Guerrieri: Fourth quarter operating net income totaled 136.7 million or 38 cents per share when excluding the 34 million pre-tax loss on the investment securities restructuring.
Thank you. Bye.
Gary Guerrieri: As part of our ongoing balance sheet management strategies, $231 million of lower-yielding securities were sold during the fourth quarter.
Gary Guerrieri: Proceeds were reinvested in securities with an average yield of 4.78 percent with similar duration and convexity profile.
Gary Guerrieri: Because the sold investment securities were inavailable for sale, with the unrealized loss already reflected in AOCI, the realized loss did not incrementally impact tangible book value, which increased 10.8% on a year-over-year basis to a record at $10.49 per share.
Gary Guerrieri: In December, F&B further enhanced its balance sheet flexibility and liquidity position by issuing $500 million of senior notes, returning in December 2030.
Gary Guerrieri: The new debt will serve as a replacement for $450 million of senior and sub-note maturities occurring in the latter half of 2025.
Gary Guerrieri: The fourth quarter's performance also includes contributions from our commercial leasing team who originate renewable energy financing transactions as part of their business model.
Gary Guerrieri: In the fourth quarter, the company recognized renewable energy investment tax credits of $28.4 million as a benefit to income taxes from a solar project financing transaction.
Gary Guerrieri: This was partially offset by related $10.4 million pre-tax non-credit valuation impairment on the financing receivable, which is included in other non-interest expense.
Gary Guerrieri: While we continue to have an active pipeline in the renewable energy sector, closings can be difficult to predict given long construction lead times.
Gary Guerrieri: Total assets at year-end 2024 were $48.6 billion, up 5.3% for the year.
Gary Guerrieri: Fourth quarter total loans and leases increased $222 million, or 0.7% linked quarter, ending the year at $33.9 billion.
Gary Guerrieri: The tumor loan growth of $240 million was led by residential mortgage, which remained strong despite rising interest rates.
Gary Guerrieri: Commercial loans and leases were essentially flat, reflecting reduced line of credit utilization.
Gary Guerrieri: scheduled reductions in CRE to the permanent market and lower capital investment levels, somewhat offset by strong production in equipment finance and renewable energy project financing.
Gary Guerrieri: Full year 2024 spot loan growth was $1.6 billion, or 5%, reflecting the $431 million auto loan sale in the third quarter.
Gary Guerrieri: Commercial loans and leases growth of $667 million, or 3.3%, benefited from both our geographic footprint and diverse lines of business.
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Gary Guerrieri: For example, the Carolina markets generated over half of the total commercial loan growth for 2024, further downshedding the value of our investments in higher growth markets.
Thank you. Bye.
Gary Guerrieri: Consumer loans grew $949 million, or 8% on a spot basis in 2024, with residential mortgage growth driving the increase.
For more information, go to www.FEMA.gov
Gary Guerrieri: Total deposits ending December at $37.1 billion, an increase of $336 million, or nearly 1% linked quarter.
Gary Guerrieri: Spot interest bearing demand balances group 4.2% linked quarter driven by strength in interest bearing check-in and money market balances.
Gary Guerrieri: Time deposits declined 2.2% linked quarter to $7.5 billion, driven by reduced levels of brokered CDs given the overall continued strength in deposit generation.
Gary Guerrieri: Average non-interest bearing deposits were essentially flat flinked quarter and the mix of non-interest bearing to total deposits at quarter end was twenty six point three percent compared to twenty six point eight percent last quarter reflecting the strong interest bearing deposit growth and stable non-interest bearing demand deposits.
Gary Guerrieri: Success of our ongoing balance sheet management and deposit gathering initiatives led to a loan-to-deposit ratio of 91.5% at year-end.
Gary Guerrieri: A more than 160 basis point improvement from year-end 2023, and over 500 basis point improvement from peak levels in mid-2024.
Fourth quarter net interest income totaled $322.2 million.
A slight decrease of 1.1 million from the prior quarter.
Gary Guerrieri: Average loans rose only slightly last quarter given the impact on consumer loans from the auto loan sale completed in the third quarter.
Gary Guerrieri: Earning asset yields decreased 17 basis points to 534 as the Federal Reserve interest rate cuts that began in September impacted variable rate loan resets.
Gary Guerrieri: Offsetting this impact was a 21 basis point increase in the security portfolio yield to 3.38% driven by the portfolio restructuring.
Gary Guerrieri: Interest bearing deposit costs decreased eight basis points linked quarter to 3% and costs on borrowings declined 37 basis points to $4.79.
Gary Guerrieri: Our total cumulative spot deposit beta since the Fed interest rate cuts began in September 2024 equaled 16% at year-end 2024 versus our 15% expectation provided on the third quarter fall.
Gary Guerrieri: The resulting fourth quarter net interest margin was 3.04%, down four basis points linked quarter.
Gary Guerrieri: Average rates paid on time and money market balance has declined throughout the quarter, bringing the December net interest margin one basis point higher than the margin for the full quarter.
Gary Guerrieri: Turning to non-interest income and expense, non-interest income was $50.9 million or $84.9 million on an operating basis when excluding the impact of the securities restructuring.
Gary Guerrieri: Mortgage banking income rose 1.4 million late quarter which included a mortgage servicing rights valuation recovery partially offset by lower gain on sale margins given the sharp increase in mortgage rates during the fourth quarter.
Gary Guerrieri: Capital markets income benefited from higher syndication and swap fees as well as strong debt capital markets and international banking revenue.
Gary Guerrieri: Non-interest expense totaled $248.2 million, a $14 million increase from the prior quarter on an operating basis.
Gary Guerrieri: Approximately $10.4 million of the length quarter increase was driven by expenses related to the renewable energy tax credit transaction mentioned earlier.
Thank you. Thank you.
Gary Guerrieri: Salaries and employee benefits expenses were up 1.9 million linked quarter reflecting higher than expected employer paid health care costs that were 6 million higher due to an increased volume of high-cost claims.
Gary Guerrieri: which was partially offset by lower production and performance-related variable compensation.
Gary Guerrieri: Strategic hiring associated with our focus to grow market share and continued investments in our risk management infrastructure also continued this quarter.
Gary Guerrieri: The efficiency ratio remains solid at 56.9% for the fourth quarter, and we continue to manage our expense base in a disciplined manner, which is expected to result in a significantly improved operating leverage performance in the second half of 2025.
Gary Guerrieri: FMV's capital levels reached all-time highs, the CET1 ratio at 10.6% and tangible common equity ratio at 8.2%, providing flexibility to deploy capital to increase shareholder value.
Gary Guerrieri: On a year-over-year basis, Tangible Book Value per common share increased $1.02, or 10.8%, to $10.49.
demonstrating our commitment to strong internal capital generation.
Gary Guerrieri: Let's now look at the guidance for the first quarter and full year 2025 starting with the balance sheet.
Gary Guerrieri: For full year 2025, period end loans and deposits are expected to grow mid-single digits versus year end 2024, as we continue to increase our market share across our diverse geographic footprint.
Gary Guerrieri: Who here in net interest income is expected to be between $1.345 billion and $1.385 billion?
with the first quarter expected between $315 and $325 million.
Gary Guerrieri: Our guidance assumes a 25 basis point rate cut in March and another 25 basis point rate cut in June.
Gary Guerrieri: Non-interest income for the year is expected to be between $350 and $370 million, with the first quarter expected in the range of $85 to $90 million.
Gary Guerrieri: This is inclusive of the new capital markets and treasury management product offerings Vince mentioned earlier.
Gary Guerrieri: Full year guidance for non-interest expense is expected to be between $965 to $985 million.
Gary Guerrieri: First quarter non-interest expenses are expected in a range of $245 to $255 million.
Gary Guerrieri: This compensation expense is seasonally higher in the first quarter due to normal long-term stock compensation and higher payroll taxes.
Thank you very much.
Gary Guerrieri: The 2025 provision expense is expected to be between $85 and $105 million.
dependent on net loan growth to charge off activity.
Gary Guerrieri: Lastly, the full year effective tax rate should be between 21 and 22 percent, which does not include any investment tax credit activity that may occur.
Thank you.
Speaker Change: Before I turn the call over, I would like to congratulate Vince Delie as he moves into his 20th year of service at F&B.
Gary Guerrieri: During his tenure, he has successfully led F&B through multiple economic cycles.
Gary Guerrieri: and some of the most challenging times our industry has faced.
Gary Guerrieri: Its visionary leadership guided F&B to grow from $5 billion in assets to nearly $50 billion.
Gary Guerrieri: catapulted FNB as an industry leader in digital banking tools and data analytics.
Gary Guerrieri: and developed a culture that values teamwork and doing what is right for all stakeholders.
Gary Guerrieri: Vince was recently named the 2024 CEO of the Year by the CEO Magazine, a well-deserved award.
Gary Guerrieri: This recognition builds on the multitude of awards FMB has achieved under Vincent's leadership.
Gary Guerrieri: Among the long list of honors, we are especially proud to have been named to list of the best, most trusted, and most admired companies in the U.S. and around the globe by prominent organizations such as Forbes, Time, and Newsweek.
Gary Guerrieri: We have received more than 100 Greenwich Excellence and Best Brand Awards in just over a decade.
Gary Guerrieri: Our President's E-Award for Export Service to gain consistent national and regional recognition is a top workplace. Now having earned more than 70 awards is a leading workplace based on employee feedback.
Gary Guerrieri: And, in addition to our highly rated mobile banking app, we have garnered both international and national acclaim for our omni-channel banking platform, led by our innovative e-store and clicks-to-brick strategy.
Speaker Change: On behalf of the FNB team and our board of directors, thank you Vince for your dedication in leading FNB.
Thanks for the kind words, Vince.
Speaker Change: My 20 years at F&B have been some of the best of my professional career. It is largely due to the dedication of my executive team and all of our employees.
Speaker Change: Every organization has a leader, but very few have the quality people that we have at F&B, which makes all this possible. So, thank you.
Speaker Change: Reflecting back on 2024, we achieved new milestones and set new records, all while bringing value to all of our stakeholders.
Speaker Change: F&B celebrated its 160th anniversary, moved into a new 26-story state-of-the-art Hedge Borders in Pittsburgh's Lower Hill District, Amberville.
Speaker Change: and expanded our digital capabilities in our mobile application and the proprietary e-store and common application, where we continue to lead the industry in customer engagement.
Speaker Change: We generated quality loans throughout our footprint while upholding our conservative and consistent underwriting standards.
Speaker Change: The posit growth was pure leading and led to a 500 basis point improvement in our loan to deposit ratio from the peak during the year.
Speaker Change: We also diversified revenue streams to achieve record non-interest income, strengthened our balance sheet with a record CET1 ratio of 10.6%, grew tangible book value 11% year over year.
Speaker Change: achieved an operating return on tangible common equity of 14.5 percent.
Speaker Change: and continued our conservative risk management practices across all lines of business.
Speaker Change: I want to thank our teams for their contributions and our shareholders for their continued support as we celebrate our 2024 milestones.
Speaker Change: and build on our momentum in 2025. Thank you, and we will now turn the call over to the operator for questions.
Speaker Change: Ladies and gentlemen, at this time, we will begin the question and answer session. To ask a question, you may press star and one using a touchtone telephone. To withdraw your questions, you may press star and two.
Speaker Change: If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality.
Speaker Change: Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster.
Speaker Change: Our first question today comes from Daniel Tomeo from Raymond James. Please go ahead with your question.
Thank you. Good morning, everyone.
Daniel Tomeo: Yeah, maybe first on the fee income initiatives that you mentioned, Vince, and how they factor into the guidance this year. Just curious, timing on those investments and initiatives and kind of your thoughts around what may be ultimate growth prospects for those new businesses and investments.
Daniel Tomeo: Sure, a portion of the investments already been recognized from an expense run rate perspective because we brought some people online and reflected in the expenses, reflected in the guidance as well.
You know, we've had pretty good success.
Daniel Tomeo: starting several of these businesses, particularly in the capital markets line.
Daniel Tomeo: And, you know, I think with the, you know, we began the Debt Capital Markets Group and we immediately began generating revenue. So that became pretty much neutral in year one.
Daniel Tomeo: you know, enough revenue to offset the expense that we brought on. I would expect the same to be true of several of the business units that were starting out. Public Finance, for example,
Daniel Tomeo: You know, we're starting to build out that team. I would expect that to begin to generate revenue in 2025, and, you know, the break-even point is fairly quick for us, and then we shift over in 2026 into some pretty attractive terms.
Daniel Tomeo: in that business in particular. In the investment banking and advisory business, the same is true.
Daniel Tomeo: that's a little bit different but you know we've identified a group that we're going to bring on and you know I would expect that to begin to generate revenue immediately because if there's an ongoing business stream and clients associated with what we're doing there.
Daniel Tomeo: So, you know, all in, I don't see it being, you know, incredibly accretive to earnings year one, but in 26, I would expect it to be meaningfully impactful.
Daniel Tomeo: So we're pretty excited about those two areas in particular. And then in terms of just building out the existing businesses, you know, we've added commodities hedging to our derivatives program.
Daniel Tomeo: You know, we have actually built out our syndications capability so that's starting to move even further in the right direction and we did pretty well this quarter. Record level. Yeah, record level of left-lead syndications.
Daniel Tomeo: So as our, you know, as our scale has increased and our balance sheet has increased, it's given us the ability to pursue larger transactions with, you know, bigger fees associated with it. So that's been a positive for us and you'll really benefit from the build out of that syndications team.
Daniel Tomeo: Our strategy was to create a number of areas to support our clients, but also to provide the company with a very diverse set of fee income sources.
Daniel Tomeo: And I think it's played out pretty well for us. I mean, you can see it over time, and we've grown that, as I said, 9% on a compounded annual basis.
Daniel Tomeo: I would expect us to continue to do well in 25 and into 26.
in a number of categories.
Daniel Tomeo: So, you know, we're pretty excited about that. Yeah, I would just add, too, the incremental cost to start these is very small.
Daniel Tomeo: As we talked about in Vince's comments, we have eight businesses that we've started and expanded and quickly, even the ones from scratch, become million-dollar-plus revenue businesses quickly. So, the opportunity is meaningful. Go ahead. I'm sorry. No, go ahead. In bringing everybody together in our new facility, you know, we have a trading floor, we have a capital markets area. It's...
Daniel Tomeo: really exciting. It makes it easier to recruit people. You know, as we bring them in, they can see our full capabilities on display. You know, if you ever get a chance, I'd encourage you to come and visit.
So, it's pretty impressive.
Speaker Change: I appreciate all that color. I guess maybe just a follow-up you talked about.
Speaker Change: The costs associated with those and how some of them have been incurred already and maybe some of them are not as high.
Speaker Change: as we think, but the guidance for 25, you talked about calling for a little less than 5% growth on the expense side, just curious that the primary drivers of that, and then I think you talked about some cost savings initiatives on the call last quarter, just curious if there's...
Speaker Change: still a plan or an outlook for some initiatives that might drive that expense growth rate down into 26.
Speaker Change: Yeah, I would just, let me just start with the fourth quarter, right, so we came in at the 248, it was above our range.
Speaker Change: which was 225 to 235 and really two items that drove that, the $10.4 million valuation impairment charge that we mentioned related to the investment tax credit.
Speaker Change: offset a piece of the $28.4 million tax credit, and then we had a $6 million increase in healthcare costs that came in just....
Speaker Change: An increased number, a 50% increase in kind of the high-cost claims above $100,000. So those two things have affected fourth quarter. So as far as kind of, you know, a run rate going into next year.
Speaker Change: You know, you won't have the 10.4 and the 6 million. I think the claims will still be a little bit higher than what we expected for 24 when we started the year, but it'll definitely be down.
material on the ground. Thanks. Okay. Thank you.
Speaker Change: I'd say you're seeing that, that's why the expenses are elevated.
Speaker Change: You know, you're seeing the build-out of the risk management area to comply with heightened standards. That's happening, has been happening.
Otherwise, our efficiency ratio would have been...
Speaker Change: in a much better position. And I would expect as we move through 2000, there's more spend coming, it's reflected in the guide, which is why we're guiding, I think on a core basis, 4%. I think that's growth. So that's reflected.
Speaker Change: It would have been better. I mean, there are a number of expense initiatives that we're pursuing to offset.
Speaker Change: that expense bill which keeps it, you know, under 5%, 4%. So as we move into 26, we would expect to be, you know, at least have the operating expenses, the salary expense reflected in the run rate.
for those compliance issues.
Speaker Change: And I would just remind everybody, you know, first quarter we have a seasonal increase from restarting the year, payroll taxes and restricted stock, it happens every year in the first quarter. You know, that's $12 to $15 million of expenses that you'll see.
Speaker Change: to first quarter. Again, that's all baked into the guidance. And then, you know, the cost-saving initiatives, every year, as you know, for I don't know how many, five, six, seven years, we've had a meaningful cost-saving target.
comes out of a variety of ways.
There it is, Vendor Negotiations, Space Optimization, Facilities Optimization.
Speaker Change: And just continuous process improvements, you know, leveraging AI and other automation tools that we have at the company. So, you know, and we've hit that every single year. So that's part of kind of how we fund some of these additional expenses and new initiatives.
Okay, great. Well, thank you for taking my questions.
Thank you.
Thanks. Bye.
Speaker Change: Our next question comes from Russell Gunther from Stevens. Please go ahead with your question.
Hey, good morning, guys.
Russell Gunther: Over the course of the year. It looks like the guide has you, you know matching
Russell Gunther: loan growth and deposit growth. So just trying to get a sense for what the competitive pressure is on.
Russell Gunther: the deposit costs will be. And if you could just kind of tie that into the net new margin or spread, touching on where your new commercial loan yields are coming in.
Russell Gunther: Yeah, I would say, you know, slide 15 does a good job kind of looking at the different levers that we have as far as balance sheet decrystallization. Just kind of as a reminder, in our cumulative update, we finished at 39.8.
This was what we had been projecting.
Russell Gunther: kind of customer-by-customer established a good plan as a pet has pivoted to start going down. So, you know, our goal would be to outperform again on the way down. The timing of it, right, is it matters obviously. But from an overall beta perspective, you know, we're still comfortable with kind of a cumulative down beta in the mid-30s.
Russell Gunther: By the end of this year, kind of in the low to mid-20s is kind of what we're forecasting.
Russell Gunther: Today, we've lowered our best rates on CDs and money marketing accounts by 100 to 125 basis points. So, the Fed's moved 100, we've moved those kind of to offset for a little bit more. Our guys, every day, are working on kind of optimizing the deposit cost.
Russell Gunther: But keep in mind, too, we're still growing deposits, so that's been a focus for us to bring our loan-to-deposit ratio down.
Russell Gunther: So the balancing act of still growing deposits and bringing down the deposit rates.
Russell Gunther: you know, we'll continue and, you know, our guys are monitoring the competitors, monitoring...
Russell Gunther: the elasticity with our customers and just kind of continue to work it down so you know that's all baked into the guidance we have two Fed cuts in there kind of March and June as our guidance slide says so it's a it's just a very active process and again the goal will be to outperform on the way down
Speaker Change: I appreciate the color, Vince, thank you. And then just last one for me, I appreciate the market share stats you shared earlier, top 5 and 50%, top 10 and 80. Maybe just touch on, you know, specific markets you'd like to increase that share and how you plan to go about it, touching on M&A, if that is something you'd love to do in 25. Thanks, guys.
Speaker Change: Well I'm going to go on the record of saying I would want to be an investment banker today. So I said I wouldn't you know I wouldn't want to be an investment banker a couple years ago. I think that's all changed.
Speaker Change: I think that we're headed into an environment that permits M&A to occur naturally and I think it's a healthy thing in the industry as smaller banks you know try to achieve scale.
Speaker Change: You know, it helps all the way around the board, helps the shareholder, helps...
Speaker Change: clients, right, as obtain capital and creates efficiency. I think we're back.
Speaker Change: to more M&A activity. Having said that, you know, FMV is still going to focus on the same strategy, which is the optimal deployment of capital. So we're going to look at a variety of ways to deploy capital, not just M&A.
Speaker Change: You know I think we've broadened our footprint. You ask about you know what markets we're most interested in. We're going to continue to build out our presence in the Carolinas and in the southeast.
You know, we have tons of potential.
Speaker Change: to continue to grow. Deposits, particularly in Charlotte and Raleigh and the Piedmont Triad, I think we've only scratched the surface.
Speaker Change: As we build out our product set, and TM in particular, there's a tremendous amount of upside for us because we're established.
Speaker Change: We've had bankers in the market for five-plus years and, you know, our brand awareness has improved dramatically. So, you know, there's significant upside there. I think in the Mid-Atlantic region, particularly in Washington, D.C. and Northern Virginia, there are opportunities for us.
I think there's upside.
in those markets from a deposit perspective.
Speaker Change: And then moving into our more traditional markets, we've done a really good job in Pittsburgh, and we're worth $11 billion. In total, deposits were number two in true retail deposit market share, excluding global custody of banks that have large broker portfolios.
Speaker Change: So I think, you know, we'll continue to focus on the areas that are more mature. For us to drive deposit growth, again, you know, there's plenty of opportunities.
Speaker Change: So there are some very large players that control big chunks of market share.
Speaker Change: that are much, much larger than us, and we have an opportunity to grow our deposit base in Cleveland and Pittsburgh and Baltimore.
Speaker Change: And the digital investment, on the consumer side, flipping over to the consumer side, we've invested pretty heavily in the e-store, in the platform. Most of our focus
has been, you know, strategically placed.
Client acquisition. Ease of acquisition of clients.
Speaker Change: So, the eStore concept itself, where you can purchase up to 30 consumer products simultaneously and loan and deposit products by filling out one application, is an example.
Speaker Change: We are continuing to add to that platform. We will have capabilities this year that will permit us to move, you know repetitive payments
Speaker Change: that occur, ACH transactions that occur in checking accounts, direct deposit will be moved instantaneously. So when a customer comes in, opens an account with us through the eStore through an investment we're making with a fintech company partner.
Speaker Change: that we picked up along the way, we're going to be able to move those things immediately.
Speaker Change: That's going to have a meaningful impact on our ability to maintain our client primacy, as we call it, which helps grow non-interest bearing deposits and improve the margin over time and also grows fee income.
Speaker Change: you know, positive good income in the consumer bank. So those are the things that we're doing to drive share. I think geographically we're in a pretty good spot and, you know, certainly, you know, the focus will be on the areas that I mentioned.
Speaker Change: you know, Virginia, the Washington, D.C. area, contingent growth in the Carolinas and taking advantage of the more mature markets where we have increased brand recognition.
Speaker Change: Anyway, that's the strategy. I think we're sitting in a very good position to continue to achieve our objectives moving into 25 and 26.
I appreciate it, guys. Thank you. Yep. Thank you.
Speaker Change: Our next question comes from Kelly Mota from KBW. Please go ahead with your question.
Kelly Mota: Hi, thank you so much for the question. I guess it's kind of just stepping back and thinking through operating leverage. I believe your prepared remarks said you expect positive operating leverage to emerge.
Speaker Change: you know, in the back half of this year. Just wondering, as you kind of look ahead, how should we be thinking about the overall efficiency of the bank and what, you know, your balance between longer term of, you know, the investments you continue to make and continue to reap benefits for you versus
Speaker Change: I can comment you know the efficiency ratio we've talked about the investments that we've been making and continue to make and even with that we continue to have an efficiency ratio that's in the top quartile so I think you know that's that's a focus for us and we've consistently every quarter last year we were in the top quartile it's not the top two or three
Speaker Change: So that's kind of an underpinning to it. And then, you know, positive operating leverage as we move forward.
at
and what happens with interest rates, obviously, but...
Speaker Change: through the issues that I mentioned earlier, and again, it's a balancing act, but a lot of Vince's charge is always, we're investing where we can grow revenue, so we're not very mindful of the types of things that we're investing in.
Speaker Change: It's clearly a focus for us and it'll be nice to return to positive operating leverage this year, for sure. Yeah, Kelly, as you know, we are still pretty dependent on net interest income. So, you know, that changes as the interest rate, as the slope of the curve changes and the interest rate requirement changes.
Speaker Change: That what we need to stay focused on is being as efficient as possible and getting the highest possible returns we can
Capital and Investment.
Speaker Change: And that's, you know, that's been our focus. I think, you know, from a strategic perspective, you know, what's the catalyst?
Speaker Change: to keep us efficient moving into the future irrespective of the changes in rates.
I'm very excited about automation, the use of AI.
Speaker Change: Our ability to track, you know, in an automated way, the activities that are going on in operations. And, you know, we have a project underway as well to optimize.
Speaker Change: you know, the reporting within the operating units that we have, which should produce pretty significant results as we move forward from an efficiency perspective.
So, being able to monitor thousands of...
Speaker Change: you know, actions that occur every day in our operations area. You know, that's going to help us in the future develop tools from an AI perspective that will help us drive efficiency.
Speaker Change: So there's there's quite a bit of technology that's coming that should help us
Speaker Change: from an expense perspective as we move into the future. Not here today, but it's coming.
and we're preparing for it.
Speaker Change: So, you know, you ask kind of long-term strategically, that would be my answer. I think there's a tremendous opportunity in the industry, not just with F&B, to take expense out of the operations area.
Speaker Change: That is incredibly helpful and I apologize if you've touched on on this one earlier in the call but you know given the change in administration have you have you seen any greater optimism among your commercial clients and willingness to you know make investments and perhaps you know drawn on lines of credit or undertake new
Speaker Change: new investments that would necessitate, you know, new loans, or is it still just too early to see any kind of change there?
Speaker Change: You know, I think, you know, based on the conversations I've had with clients, I think they're more optimistic about, you know, the conditions for business as we move forward. Obviously, there seems to be euphoria.
Speaker Change: about it. I think that, you know, we're starting to see the beginning of planning for capital investment, which leads to increased demand. And, you know, I particularly, again, I'm excited. I think the things that I spoke about for us also applies to other industries.
Speaker Change: And because of those gains in efficiency, there should be increased profitability and the ability to deploy capital and receive higher returns right on investment. So I think over time, we're going to see a building of demand for particularly C&I opportunities.
Speaker Change: so our customers doing acquisitions right? Yeah and customers pursuing M&A transactions that's the other side of it you know we we haven't everything kind of just died right everything just stopped and I think we'll see more M&A activity
Speaker Change: within our customer base and in the markets that we serve which will lead to opportunities for us because that creates opportunities for us to participate in the credit facilities and provide capital market services.
Speaker Change: I think the investment banking platform that we're launching for middle market companies is also the perfect time.
Speaker Change: because I think you'll see more activity even in the lower end of the spectrum and that'll create opportunities for us to benefit from the advisory fees but also to roll the proceeds of the sale into our wealth platform.
Speaker Change: So, I think, you know, the investments we're making, given the time that we're in and where we are in the cycle, I think are pretty smart. So I hope it all pays off and works out the way we expect it to.
Anyway, I think there is more demand.
Speaker Change: I appreciate all the color on all fronts. Thanks guys, I'll step back.
Speaker Change: That's a positive to this year. That's been about a $10 million a quarter drag to net interest income, and those began to roll off to 250. There's a billion in total, 250 a quarter. The first one rolled off on January 1, and the rest of them, May, July, and October.
Speaker Change: So that $10 million a quarter drag will be going away as you go through the year. So that's also additive to net interest income as we get to the second, third, fourth quarters.
and many more. Thank you. Thank you.
Thank you so much.
Thank you.
Speaker Change: Our next question comes from Manuel Nevis from D.A. Davidson. Please go ahead with your question.
Speaker Change: of NII and NIM across 25, stable NIM in the first quarter. You had the cut in March, in June. Where would it go from there across the year?
Speaker Change: Yeah, I would just say, I mean, the fourth quarter feels like it's the bottom year for us, so as you look to the first quarter, we would expect it to go up, you know, I don't know, a few basis points, two to three basis points or so, and then really just gradually build as you go through the year with the March and June.
Speaker Change: And, you know, with the Fed going a little bit slower, another key point, you know, we're still...
Speaker Change: you know, asset sensitive overall, we continue to organically move back to neutral from an interest rate risk standpoint.
Speaker Change: The delay slowdown in the Fed cuts is helpful in the short run for us because it helps you kind of catch up and manage the deposit cost down as I mentioned earlier.
Speaker Change: So, and we have, you know, again, that slide 15 does a good job of kind of talking about the different moving parts, but, you know, we have, just to give you a few data points, and we have $10 billion of liabilities that are repricable today.
Speaker Change: They have another 5.2 billion in CVs to mature in the next six months.
3.2 in the next three months of 4.3.
Speaker Change: Billion Won of annual cash flows from the investment portfolio that's rolling off in around 3-3.04%. You know, we're currently reinvesting in the 480 to 490 kind of area. So those are some of the levers going on. And then you have the loans, you know, the $16 billion that are variable rate loans that are tied to SOFR or PRIME.
Speaker Change: and with the Fed moving slower, we get the benefit of that in our net interest income and our guide has the two cuts right in there.
Speaker Change: What's the sensitivity? Would you go towards the high end of your guide with less cuts? Is that the way to think about it?
Speaker Change: Yeah, you have fewer cuts, for sure. In the short run, it's additive. You still want those cuts, the short end, to come down as you get into 26 and beyond. But, yes, in the short run, it's additive to one less cut.
Okay.
How does...
Speaker Change: come in pretty strong from the start giving out the men and women is up. And what's the regional tilt of that growth, still towards the Carolinas?
Speaker Change: yeah I mean that's those are great questions you know last quarter when
Speaker Change: I was asked a similar question. I said the pipelines go down, which they are.
Speaker Change: continue to be. We went through the holiday season, the slower seasonal period for commercial banking is the end of the year, right? So, you know, pipelines still remain lower, probably 10 to 15 percent in variety of markets.
Speaker Change: pretty much across the board, but I expect that that's in the short term. You know, I look at the 90-day pipeline more than I look at the long-term pipeline because that's what's more likely to come in, right?
Speaker Change: As you look at those pipelines, they're starting to build. I would expect momentum to build throughout the year, as I said on the last call, and we're expecting demand to pick up, you know, fairly briskly towards the second half of the year.
Speaker Change: you know and that kind of aligns with the normal seasonal cycle.
Speaker Change: for CNI, and CNI Lending in particular, commercial banking. So, you know, that would be my expectation. This is typically a lower period. I would say from a geographic perspective, you know, we're seeing, we've seen continued growth in Pittsburgh because we're mature, we see opportunities here.
Speaker Change: So we continue to get those. In the Carolinas, we've had great traction. The pipelines are actually slightly better in the Carolinas, continue to trend in the right direction.
Speaker Change: So, I would expect us to do well there. And then, you know, I think Mid-Atlantic's trailing a little bit. You know, as we move through the year, you know, I think there's upside in those markets. So, that's pretty much how we see the world.
Speaker Change: but it's still led by the Carolinas in our core, you know, Pittsburgh operation are the big drivers for our pipeline moving forward.
What would be the potential upside?
Speaker Change: If the curve continues to steepen in the back half of the year, and how much is that already in the guidance? And I'll stop back after this question.
Speaker Change: I don't think, I'll let Vince answer that question, but I don't think that, you know, we have upside-baked into the guidance and we look at the yield curve as it's sloped and we look at the forecast.
Speaker Change: and we model out our guide based upon what we think is going to happen with rates.
Speaker Change: And, you know, as we sit today, the yield curve is still slightly inverted, right? I expect that to correct over time.
Speaker Change: The more correction we have, the more impactful that is for banks in general. I would look at it that way. I think in the short run, as Vince mentioned, there's also a lag associated with pricing on the liability side when things shift.
Vince: So, you know, if there are fewer rate cuts, that's going to help you in the short run, but in the long run, you know, you're going to be stuck in a longer cycle with, you know, an inverted or flat yield curve. So...
It's kind of a tricky question.
Speaker Change: Right and there's there's quite a bit that goes into the modeling. I don't know if you want to add to that I would just add up, you know going back to betas, right? So the better job we do managing the deposit down obviously that can put you into the hierarchical range and that's clearly
Speaker Change: a focus daily, weekly, every weekly price meeting we have. So that's something that the better we do, the better we do to outperform peers. That's additive to the net interest income, but it will be higher. Yeah, but we're not taking, we don't shift to take bets.
on interest rates. We're managing the book to neutral.
Speaker Change: You know, and we're just doing whatever we can, right, from a pricing perspective, from a client perspective, deposit mix, we do everything we can to try to optimize or maximize profitability in the environment that we're in.
Speaker Change: so that's that's how we operate and I think you know you've got the guide and the guide is is based on what we know today.
Speaker Change: You know, we'll see how the year plays out. Yeah, we've done a nice job as we've been growing deposits, bringing in new relationships, and as you broaden those relationships, again, that's very additive from a profitability standpoint and
Speaker Change: broadening the relationships as you get into this year and into next year and you know the steeper yield curve clearly as you exit 25 into 26 is very much a positive for us.
Thank you for the commentary.
That's a great question. Thank you.
Speaker Change: Our next question comes from Frank Schirotti from Piper Sandler. Please go ahead with your question.
Good morning. Just a couple. First, for Gary, on credit,
Frank Schirotti: You know just curious your thoughts on do we see continued
Frank Schirotti: and your reserve has been very stable over the last few quarters. Just curious if, you know, your thoughts on 2025 and maybe if that could be a potential tailwind, some reserve releases, and any assumption on continued reductions in non-owner-occupied commercial real estate.
Thank you.
Speaker Change: Yeah, Frank, in reference to where we sit today with the reserve,
Speaker Change: It has been extremely stable, and I think that's a reflection of the stability in the portfolio as to where we sit today, going into 2025, and the position of each individual portfolio within the total of all the assets.
Speaker Change: So, you know, in terms of looking ahead, I mean, I, we've guided
we've guided to a fairly stable...
type of provision expenses.
Speaker Change: We are extremely aggressive in managing the book of business and, you know, we feel good as to where it sits today.
were aggressive and in Q4.
Speaker Change: around, you know, the position of the book so we feel good about where we have it positioned at the moment and will continue to work, you know, through the existing environment, you know, that the industry is facing.
Thank you.
In terms of CRE,
Speaker Change: During the year, just from a total non-owner occupied CRE standpoint,
Speaker Change: The quarter I mentioned in my remarks, we were down $300 million just in that quarter. For the full year, it was in excess of $500 million.
And, you know, that was really centered around construction.
Speaker Change: being down $370 million, and Office being down about $350 million.
Speaker Change: We're continuing to focus on moving the non-owner exposure as a percentage of capital down.
So, you know...
Speaker Change: I would expect to see that continue as we move forward.
Speaker Change: The secondary markets have opened up quite a bit. We saw some assets...
Speaker Change: moved there, which is, you know, what we expect them to do. So that surely is a positive event as well. And we do see that continuing as we move through the area.
and many more. Thank you. Thank you.
We'll come.
I appreciate that and then
Speaker Change: Just lastly, Vince, just curious your broad thoughts looking at the regulatory
Speaker Change: framework. The idea, you know, being maybe a little bit of a lighter regulatory touch in the new administration.
I'm just curious, your thoughts, does that just...
me maybe a more streamlined
Speaker Change: M&A process for the industry and maybe a pick up there or do you see any...
Speaker Change: specific potential benefits to reduce your expense burden here. You know, you mentioned the heightened standards, questions whether some of those thresholds may be moved higher, so just curious your broad thoughts there.
Speaker Change: Yeah, I'm not sure that the impact of banks, our size, will be immediate in terms of expense reduction. I think that, you know, given the bank failures that occurred several years ago, the demeanor of the regulators shouldn't change materially in the short run. I think in the long run, as the administration carries on, I think we'll see some relief.
Speaker Change: I believe that the previous administration was anti-M&A kind of across the board.
Speaker Change: So a lot of the policies that were imposed and the regulators were enforcing rules that prevented banks from doing M&A, you know, I'm convinced of that. I think that will ease up.
Speaker Change: So, I think it will permit, not just in the banking sector, but across the board, permit more M&A to occur, which is why I would want to be an investment banker today, not a few years ago. But, I think...
Speaker Change: You know, I think generally the risks associated with operating a large institution aren't changing.
Speaker Change: and the rigor in which the regulators pursue enforcement of regulations that are on the books isn't going to change materially.
Speaker Change: I think that will be pretty steady, particularly with the OCC.
Speaker Change: You know, the regulatory bodies have been more consistent in the application of the rules.
I think what's going to go away...
Speaker Change: are the enforcement actions and some of the things that happen kind of outside of the normal risk management, safety and soundness regime. I think, you know, there seems to be...
Speaker Change: a different appetite for, you know, those types of moves by the regulators under this administration. So I think for the large, large banks, they'll see some relief.
Speaker Change: You know, they've talked about FOSIL 3, you know, changes to capital requirements and liquidity requirements. You know, obviously, those changes trickle down to us, but the immediate impacts for larger institutions.
Speaker Change: That's kind of my view. You know, I think we'll see some relief, but it's not going to result in material reduction and expense. I don't see that happening.
Thank you. Bye-bye.
Great. Not in the short color.
Speaker Change: Once again, if you would like to ask a question, please press star and then 1 using a touch tone telephone. To withdraw your questions, you may press star and 2.
Speaker Change: Our next question comes from Brian Martin from Janney-Montgomery. Please go ahead with your question.
Okay, good morning, guys.
Okay, Brian.
Speaker Change: Hey, just one question on the kind of current, I think you talked about the deposits, Vince, but just on the loan yields, just kind of competition, kind of what you're seeing there in terms of, you know, yields today. Can you give a little color on how those are trending?
Speaker Change: Sure. I mean, if you look at the new loans that we made during the fourth quarter, you know, came on around six and a half. We've been, that's kind of where we've been putting loans on the books the last couple of months of the November and December. So, so it's down from the prior quarter.
Speaker Change: about 30 basis points or so. But at a six and a half rate, it's still 66 basis points greater than the overall portfolio yield. So it's clearly still additive to that. That's kind of where we're putting, kind of what the blend of Lowman's that we're putting on, the blended rate right around that six and a half level.
Speaker Change: Okay, and then just in terms of the opportunities on the capital side, you know, I guess, can you talk about, you know,
Speaker Change: weighing the, you know, the sheer buybacks versus kind of the potential, you know, I guess on the M&A side just in terms of
Speaker Change: Smaller and additive to an existing market, or is it more you're looking to get to a new market? I mean the the markets you're in you know are pretty dynamic So just wondering if your expectation would be to be looking somewhere new or just kind of filling in kind of you know Like maybe some of the more recent ones on on that front so
Speaker Change: Sure, as I've said before, we haven't really changed our position from an M&A perspective. We would entertain opportunities. We're not looking for transformational transactions. I think the company's pretty well positioned.
Speaker Change: in some fairly dynamic markets. We have some work to do internally.
Speaker Change: Right to ensure that we generate the returns that we can achieve in those markets so and manage risk So I think from our perspective we're focusing still focusing internally. We think we can get you know some pretty significant growth
Speaker Change: out of the existing footprint and grow some very profitable businesses that will help us from a return perspective. And then in terms of earn back in the event that we were to find an opportunity that was appealing to us.
You know, we would expect a very
Speaker Change: quick return on tangible book value dilution. So, you know, I'd say continue to look within three years, right? Returns would have to be substantial.
Speaker Change: you know, we look for internal rates of return in the high teens to 20s.
Speaker Change: you know, the ability to take costs out, you know, fairly effectively and efficiently. And then looking at the deposit franchises, you know, we would not want to dilute. I've said this before, you know, we've built a pretty strong deposit franchise with a healthy demand-deposit mix. We're not looking to dilute that.
Speaker Change: We're also, you know, trying to manage our efficiency ratio, so, you know, if we did something we would want to make sure that we could take.
substantial amount of cost out I've mentioned that
Speaker Change: From a credit perspective, in terms of the portfolio, we're not looking to grow.
Speaker Change: CRE exposure, right? We've been reducing that over time. I think we're better than peers, right, when you look at it relative to Tier 1 capital, right, Gary? Concentration, perspective. We're looking to continue to improve that, focusing on more and larger C&I opportunities, which produce, you know, a high return for us because of the capital markets fees.
Speaker Change: you know lower risk profile. You know from a loan to deposit perspective as I mentioned we brought that down fairly significantly, you know we would like to continue to do that.
Speaker Change: So as we move into the more robust part of the year from an economic expansion perspective or loan demand perspective, we have the liquidity and the capital to be a player.
Speaker Change: You know, I think we're moving in the right direction to position us to really take advantage of the changes that are occurring economically and, you know, I feel really good about where we are.
Speaker Change: That's kind of the strategy. So I'm not fixated on M&A. I don't think that's the only answer. And then again, we do look at share buybacks. If it makes sense, if the earnback's reasonable, and it provides us with the EPS accretion, we're looking at the dividend.
Speaker Change: Every quarter, we examine, you know, what's happening, what are our capital needs.
Speaker Change: You know, we're not going to sit here with excess capital either so
Speaker Change: you know, depending on how things play out, we're going to look at that as well. So we kind of look at each area and we look for optimal deployment of capital for the shareholders.
Speaker Change: That's been our mantra and, you know, we're going to continue to do that.
Yeah, CT water ratio at 10.6%.
Speaker Change: And, you know, the expectation to have higher levels of earnings, higher level of internal capital generation. It gives us more flexibility to pursue the things that Vince mentioned.
Speaker Change: With our stock valuation still very attractive, share repurchase is definitely part of the consideration.
Speaker Change: But that's not, the capital is not burning a hole in our pocket, right? We're not, we're not running out to deploy the capital. We want to make sure we make really smart decisions that position us to take advantage of opportunities in the marketplace that provide the shareholders with the absolute best returns.
Speaker Change: We're not looking to change the risk profile of the company or or change I think we're operating very effectively and have proven over a long period of time that we can You know produce results that are better than peers. So now that's going to be the focus
Hope that's helpful.
Speaker Change: And ladies and gentlemen, at this time, we'll be ending today's question and answer session. I'd like to turn the floor back over to Vince Delie for any closing remarks.
Speaker Change: Well, thank you very much. I appreciate all the questions and the interest in FMB. You know, we continue to to be very optimistic about the momentum that we've created. We had a pretty solid year in a choppy environment, so I, you know, kudos to the management team and to the employees for all the work that they've done, and I can't think of a better place to be for the last 20 years than here.
Speaker Change: So it's been very exciting. You've thrown a lot at us.
a pandemic, a financial crisis, a liquidity crisis.
Speaker Change: Bond Crash, but we're we're here. We're surviving. We're doing really well, and I appreciate my team. I they've done tremendous things You know no matter what the circumstances are we rally together and we get things done, and I I couldn't ask for a better Career or group of people to work with so thank you very much
Speaker Change: And, ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.