Q1 2025 F.N.B. Corp Earnings Call
Music
Speaker Change: Good morning everyone and welcome to the F.N.B. First Quarter 2025 earnings conference call.
Speaker Change: All participants will be in a listen only mode. Should you need assistance please single a conference specialist by pressing the star key followed by zero.
Speaker Change: Opportunities presentation. There will be an opportunity to ask questions. Ask a question you may press star and then one using a touch-down telephone. If you draw your questions you may press star and two.
He's also known today's event as being recorded. [inaudible]
Speaker Change: At this time, I'd like to turn the comments call over to Lisa Haire, manager of Investor Relations.
Please go ahead.
Speaker Change: Good morning and welcome to our earnings call. This conference call of F.N.B. Corporation and the reports that file with the Securities and Exchange Commission opt to contain overlooking statements and non-GAT financial measures. Non-GAT financial measures should be viewed in addition to and not as an alternative for our reported results prepared and accorded
Speaker Change: Reconciliation of gap-to-non-gap operating measures to the most directly comparable GAAP financial measures are included in our presentation materials and in our earnings release.
Speaker Change: Please refer 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 reply of this call will be available until Thursday, April 24th, 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 Delie, Chairman, President, and CEO . Thank you very much.
Thank you. Welcome to our first quarter earnings stall.
Speaker Change: Joining me today are Vincent Calabrese, our Chief Financial Officer, and Gary Guerrieri, our Chief Credit Officer.
Speaker Change: F.N.B. reported net income available to common shareholders of 116.5 million or 32 cents per share.
Speaker Change: Record Capital Levels with CET-1 of 10.7%, and tangible common equity to tangible assets of 8.4%.
Speaker Change: The ever-changing macroeconomic environment emphasizes the importance of the continued execution of our long-term strategy, particularly around diversifying revenue streams, active balance heat management, generating ample capital.
Speaker Change: and liquidity and maintaining a balanced, well-positioned loan portfolio with consistent underwriting and robust credit
Speaker Change: F.N.B. Generative Goddess Revenue Growth Disco Order, reporting total revenue of 411.2 million, driven by net interest income growth and solid non-interesting income.
Speaker Change: We benefited from a higher level of earning assets and stable margin with directional improvement during the quarter.
Speaker Change: Non-interests income totaled 87.8 million, benefiting from the strategic investments we have made to develop and expand, high value business units that diversify revenue and enhance product capabilities for our clients.
Speaker Change: During the past 10 years, we have significantly enhanced our capital markets offerings, which has led to revenues more than doubling during that timeframe. Frank Schiraldi, Vincent Calabrese, Brian Martin, Timur Braziler,
Speaker Change: We recently announced our acquisition of a Partique Investment Banking firm focused on delivering financial advisory services to public and private companies.
Speaker Change: This team of experienced bankers has advised on hundreds of transactions with an aggregate value of nearly 40 billion across a variety of industries for middle market and large corporate clients.
Speaker Change: Given the scale of our company, the growth of our client base, and the changing economic outlook, this is an opportune time to invest in expanding our capability.
I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: The first quarter annualized loan of deposit growth in a seasonally slower period, where 3.5% and 1.4%, respectively, demonstrating our success in growing client relationships and market share. The first quarter annualized loan of deposit growth in a seasonally slower period, where 3.5% and 1.4%.
Speaker Change: F.N.B. remains focused on being our clients' primary operating bank by prioritizing high-touch services and a superior digital delivery channel, including our award-winning e-store.
and Gary Guerrieri. Thank you. Thank you.
This month, we launched automated direct deposit switch capabilities.
Speaker Change: The latest enhancement to our award-winning digital banking experience, which provides the option for customers to move their payroll direct deposits instantaneously with a few simple steps.
Speaker Change: Our comprehensive digital strategy, including the use of AI, is designed to drive client acquisition, engagement, convenience, and privacy.
Speaker Change: and is a major force behind our success gaining share throughout our footprint and broadening our client relationships.
Speaker Change: As we demonstrated during the 2008 financial crisis, the pandemic, and the more recent banking liquidity crisis.
Speaker Change: F.N.B. maintains a diversified and granular deposit base, consistent and conservative underwriting, solid capital and liquidity levels, and sound risk management policies and governance.
Speaker Change: These practices have always been integral to F.N.B's long-term strategy and are engrained in our culture in enterprise risk management program.
Speaker Change: Our team frequently engages in regular liquidity stress test analysis, capital stress testing, CSU Reserve Model Analysis, and diligent and proactive credit monitoring, ensuring we are prepared for a range of economic scenarios.
Speaker Change: In response to the recent tariff announcements, our team completed liquidity, capital, and credit stress tests.
Speaker Change: The results show strong coverage and ample liquidity in the severe scenario, once again demonstrating
Speaker Change: Our credit team has worked closely with our bankers to complete an extensive survey to identify any risk related to the terror policy.
Speaker Change: According to our findings, F.N.B. remains well positioned at this point, with manageable exposure to the most heavily tariff, impacted businesses and consumer portfolios.
Speaker Change: We will continue to diligently monitor our loan portfolio and engage in active dialogues.
Speaker Change: F.N.B.'s approach to credit risk management has a proven history of providing strong and stable asset quality to various economic cycles. And I am confident that we will be able to manage through the current economic environment.
Speaker Change: I will now turn the call over to Gary who will provide additional details about the potential impact of tariffs and review our overall credit performance.
Gary.
Speaker Change: Thank you, Vince, and good morning, everyone. We ended the quarter with our asset quality metrics remaining at stable levels.
Speaker Change: Other delinquency ended the quarter at 75 basis points, down 8 bits from the prior quarter, with NPL's and Oreo unchanged at 48 bits.
Speaker Change: That charge offs totaled 15 basis points, reflecting solid performance in the current economic environment.
Speaker Change: Criticized loans were essentially flat, up six bips on a linked quarter basis, reflecting continued stability across the portfolio.
Speaker Change: Total funded provision expands for the quarter, stood at 18.6 million, supporting loan growth, charge-offs not previously reserved for, and a qualitative adjustment for potential tariff impacts, which I will later touch on.
Speaker Change: Our ending funded reserve stands at 429 million, an increase of 6.1 million, ending at 1.25 percent unchanged from the prior quarter.
Speaker Change: When including acquired unamortized loan discounts, our reserve stands at 1.34% and our NPL coverage position remains strong at 267%.
Speaker Change: We are monitoring the current market volatility from the recently enacted tariffs and its potential impact on our loan portfolio.
Speaker Change: In January , in anticipation of the tariffs, we've required a mandatory assessment in the underwriting of all new and renewing CNI loan requests.
Speaker Change: We then surveyed more than 50% of our CNI and owner-occupied loan portfolio down to 3 million in relationship exposure with a focus on industries more likely to be impacted.
Speaker Change: We were pleased with the outcome of that analysis which reflected that less than five percent of the exposures were at risk of greater impact from the direct tariffs.
The results further supported the qualitative allowance adjustment mentioned earlier.
Speaker Change: Obviously, a wider credit impact could occur from a slowing or recessionary environment, which we cover in our quarterly stress testing process.
Speaker Change: Lastly, our concentration risk-managed framework allows us to assess the portfolios on a daily basis including potential impacts on our reserve during a crisis or periods of economic uncertainty.
Speaker Change: Additionally, we have reviewed other potential risks to our commercial and consumer loan portfolios regarding government contracts and employment.
Speaker Change: Our government contracting portfolio is small and consists primarily of a handful of investment of great exposures.
Speaker Change: We are in frequent contact with these customers and feel comfortable as each generally supports critical government functions.
Speaker Change: We are closely monitoring our consumer exposures, particularly in the mid-Atlantic region and if not observed any negative impacts at this point.
Speaker Change: Regarding the non-owner CRE portfolio, credit metrics continue to remain at satisfactory levels with the Linquency NNPLs at 82 and 77 basis points respectively.
Speaker Change: This reflects an improvement from 99 and 84 bips at the end of last year.
Speaker Change: We continue to aggressively manage this portfolio as we have throughout this interest rate cycle with a non-owner exposure declining by 283 million in the quarter, ending at 229 percent of capital. [inaudible]
Speaker Change: As we have done each quarter, we completed a full portfolio stress test.
Speaker Change: The results reflected further improvement with our current ACL covering 97% of our projected charge-offs in a severe economic downturn.
In closing, our credit results reflected continued strength and stability.
Speaker Change: The success of our approach and strength of our leadership team through many economic cycles was recently reflected in an independent global study that named Vince Delie as one of the top CEOs in the United States across all industries based on performance and reputation.
Speaker Change: and further placed even the top five CEOs among the largest banks in the United States.
Speaker Change: Vincent, our leadership team have created a culture that understands the importance of maintaining a strong risk philosophy across the company.
Speaker Change: including a robust credit underwriting and risk management function that has enabled us to deliver consistent credit results through these periods. Thanks for your time.
Speaker Change: I will now turn the call out of Vincent Calabrese, our chief financial officer for his remarks.
Vincent Calabrese: Thanks, Gary. Good morning. Today I will review the first porter's financial results and walk through our second porter and full-year guidance.
Vincent Calabrese: First quarter operating net income totaled 116.5 million or 32 cents per share. With total revenue is coming in near the higher end of our first quarter guidance range and not interest expenses coming in near the lower end of our guide.
Vincent Calabrese: A 3.5% annualized linked quarter increase driven by growth of 224 million in consumer loans and 72 million in commercial loans and leases.
Vincent Calabrese: Residential mortgages continue to lead consumer long growth, and nearly half of the mortgage production for the quarter was sellable.
Vincent Calabrese: Spots, CNI loans, and commercial leases combined grew at a mid-single digit annualized rate from year-end 2024.
Vincent Calabrese: Total deposits added the quarter of 37.2 billion on a spot basis, an increase of 132 million
Vincent Calabrese: Nantesh is bearing demand deposits to increase 1.1% link quarter and comprise 26.5% of total deposits up 19 basis points from the fourth quarter.
The loan-to-deposit ratio increased slightly to 91.9%.
Vincent Calabrese: Our total deposit cost ended the first quarter at 1.95% down 13 basis points from year in, leading to a cumulative total deposit beta of 28% since the interest rate cuts began in September last year.
Vincent Calabrese: The first quarters in NHS Margin was 3.03% stable with last quarter.
Vincent Calabrese: The margin bottomed early in the quarter, in March's net interest margin was 3.08%, 5 basis points above the quarterly average.
Vincent Calabrese: Intersparing deposit costs fell 24 basis points linked to quarter, driven by lower rates paid on money market and time balances.
Vincent Calabrese: An 11 basis point decrease in the total yield on earning assets to 5.23 percent was offset by a 10 basis point decrease in the total cost of funds to 232.
Vincent Calabrese: The average yield on the investment securities portfolio increased three basis points length quarter to 3.41%, benefiting from restructuring actions taken in the fourth quarter.
Vincent Calabrese: Net interest income totaled nearly 324 million. It's a high end of our guide and a $1.6 million increase in the prior quarter, even with two fewer days.
Vincent Calabrese: Turning to non-interested income and expense, non-interested income totaled 87.8 million consistent with the year-go quarter and right in the middle of our guidance range from January .
Vincent Calabrese: Both management revenues increased 8.4% year-over-year to a record 21.2 million with contributions across to geographic footprint.
Vincent Calabrese: Capital market's income of 5.3 million was impacted by lower commercial customer activity given the current macroeconomic environment. [inaudible]
Vincent Calabrese: Not an interest expense, total 246.8 million, but slight decline from last quarter and at the low end of our guide.
Vincent Calabrese: salaries and employee benefits increased $7.1 million due to normal seasonal long-term compensation expense of $7.6 million and seasonally higher employer paid payroll taxes which increased $4.4 million.
These were partially offset by lower employer paid health care costs.
Vincent Calabrese: Salaries and benefits reflect strategic hiring associated with our efforts to grow market share and continue investment in our risk management infrastructure.
Vincent Calabrese: Compared to the year ago quarter, outside services increased $3.5 million for 15.1% from higher volume-related technology and third-party costs associated with ongoing investments in our enterprise risk management framework in support of our strategic initiatives.
Vincent Calabrese: The seasonably affected first quarter efficiency ratio remained solid at 58.5% and we continue to manage our expense base in a disciplined manner.
Vincent Calabrese: We expect to improve performance with positive operating leverage in the second half of 2025.
Vincent Calabrese: F.N.B. continues to actively manage our capital position for ample flexibility to support balance sheet growth and optimize shareholder returns while appropriately managing risk.
Vincent Calabrese: Our financial performance and capital management strategies resulted in our TCE ratio reaching 8.4% and the CAT1 ratio reaching 10.7%. Both multi-decade highs.
Vincent Calabrese: Tendual Book Value per Common Share was $10.83 at March 31st, an increase of $1.19 per share or 12.3% compared to March 31st of last year.
Vincent Calabrese: We repurchase 741,000 shares during the quarter and expect to pursue opportunistic share repurchase activity once there's more clarity around terror policies moving forward.
Vincent Calabrese: Let's now look at guidance for the second quarter in full year of 2025.
Vincent Calabrese: All guidance is based on current expectations. While remaining cognizant of the highly uncertain economic environment, we are all operating it.
Vincent Calabrese: We are maintaining our full-year balance sheet guidance for spot balances by year in 2025, projecting period and loans to grow mid-single digits on a full-year basis as we increase our market share across our diverse geographic footprint.
Vincent Calabrese: Timur Lee, we are projecting total deposit balances to grow mid single digits, also on a year-over-year spot basis.
Vincent Calabrese: Our projected full-year income statement guide is unchanged with last quarter.
Vincent Calabrese: A projected full year net interest income is still expected to be between 1.345 and 1.385 billion.
Vincent Calabrese: Factoring in 25 basis point rate cuts in both June and September .
Vincent Calabrese: Set and quarter net interest income is projected between 325 and 335 million.
Vincent Calabrese: The non-interesting Come Full Year Guide remains between 350 and 370 million.
Vincent Calabrese: The second-quarter non-interest income guides between 85 and 90 millions with seasonality expected to carry us to the higher end of the range.
Vincent Calabrese: But the second quarter, not interest expense, expected to be between 235 and 245 million.
Vincent Calabrese: Full-year provisions, guidance, maintained at 85 to 105 million, given the stability in our credit performance to start the year, and will be dependent on that loan growth and charge off activity.
Vincent Calabrese: As Gary mentioned, while we performed a deep dive assessment of the risks caused by the current economic environment, the potential impacts are highly uncertain at this point, given the fluidity of trade negotiations.
Vincent Calabrese: Lastly, the full year effective tax rate should be between 21 and 22%, which does not assume any investment tax graded activity that may occur.
With that, I will turn the call back to Vince.
Speaker Change: Thank you, Vince. In closing, I want to thank the entire FNB team for their commitment to our court values, including innovation and collaboration. Also, thank you, Gary, for your comments.
Speaker Change: The recognition that I've received is a direct result of many contributors to F.N.B. success, including our Board of Directors and exceptional leadership team and passionate engaged employees.
Speaker Change: Our culture, risk management, and employees' hard work and dedication have delivered strong first-order results, and will continue to guide us through, as we protect and grow, share our value through various economic scenarios.
Speaker Change: Thank you, and we will now open the call for questions.
Speaker Change: Ladies and gentlemen, at this time we'll begin the question and answer session. To ask a question you may press star and then one using a touch on telephone to withdraw your questions you may press star and two.
Speaker Change: If you are using a speaker phone, would you ask please pick up a handset prior to pressing the keys to ensure the best sound quality.
Speaker Change: What's again that is Star and then one to join the question to you.
Speaker Change: Our first question today comes from Russell Gunther from Steven, please go ahead with your question.
Hey, good morning, guys. [inaudible]
and Enrique Ortiz. Learn more at www.Pearson.com Transcription by Transcriptionalogy.com
Speaker Change: Well, I wanted to start on the NII Outlook if I could, you know, first, if you could just remind us of the cadence of the slot maturities over the course of the year and...
How that benefit N.I. this quarter.
Speaker Change: And then to follow up, maybe just walk us through the scenario underlying the high end of the NII guide and what that contemplates from a long growth perspective, shape of the curve and whether any additional security portfolio restructuring.
Thank you.
Speaker Change: Yeah, I would say, I guess, a couple of things to see. The narrative to think of, guys.
Speaker Change: Yes, that's from June and September . We talked about so, you know, we're maintaining the same full level for the full year. I would say that for the second quarter. Thank you very much.
Speaker Change: You know, based on where we exited the first quarter, kind of 3.08, for the month of March, as I mentioned.
Speaker Change: You know, you could potentially see us about what happens if race during the quarter, right? It's very volatile, but you could you could definitely see us being in kind of the upper half of that second quarter range. [inaudible]
Speaker Change: for the full year, there's just too much to play out. [inaudible]
Speaker Change: You know, we're still comfortable as we reaffirmed all of our income statement guidance for the full year. So we're still comfortable with the full year levels, but second quarter, you know, the two areas in our guidance where there's some some upside in the range would be the net interest income. And then not interest income, as I mentioned in my prepared remarks just seasonally, you know, getting us at the higher end of that range and then kind of upper half of the net interest income range for the second quarter. .
Speaker Change: Got it. And then twerking, structural activities, you know, any additional restructuring activities based in, you know, the fourth quarter restructuring we did, you know, was a nice couple of penny benefits of the full year that we had done. So we're not contemplating anything as we sit here today. And the first part of your question, Russell, again, what was the first part?
Speaker Change: Just the impact of the swap maturities and how that played out this quarter.
Speaker Change: Sure. I mean, that was smart. We've talked about 10 million a quarter, which is where it was in the fourth quarter. It was about 8 million drag in the first, goes down to 6 million in the second, and it kind of goes down from there, a couple million in the third, and then small amount left to the million in the fourth quarter, because by that, it's all rolled off. [inaudible]
Speaker Change: So $8 million for the past quarter, about $6 million for the second quarter.
Speaker Change: Vincent, that's really helpful. Thank you very much. And then just last line of question for me would be on the expense side of things.
Speaker Change: I know you talked about your expectations for more positive operating leverage in the back half of the year. Just curious as you think about one to result, you know, what could take us to the low end of the range and into Q. And then. And then.
Speaker Change: Is that kind of improved back half performance contemplative of any specific efficiency initiatives or maybe just some help in terms of how you're thinking about the cadence.
Speaker Change: Yeah, I would say, I mean, you know, we have the history of taking costs out every year. We've been very disappointing smeds managers for long. We've been here. So in this year's guidance has us, you know, with a similar kind of $15 to $20 million kind of cost savings target through being negotiating contracts, space optimization, continued process improvement focus leveraging AI machine learning.
Speaker Change: at some of the the tools that we already have kind of in the building. So, so that's kind of our state and at some cost dates, as well as height and standard, we've talked about that in the past and that's that's again in our guidance and
Speaker Change: You know, that's in the vibes, $10 million kind of area of expenses that are baked in as we're close to $50 billion.
Speaker Change: You know, the approach to that height standard is kind of level. So I would say, I mean, to me, the expect guys kind of build around just best to use for the quarter as well as for the full year, based on what we know today. Thank you.
Speaker Change: Okay, that's really helpful, guys. Thank you very much for taking my question.
Sure, thank you, Mr.
Speaker Change: Our next question comes from Daniel Tamayo from Raymond James. Please go ahead with your question.
Thank you. Good morning guys.
maybe Ann.
Speaker Change: Maybe talking about, I'll take the other side of that question on the NII specifically as it relates to the loan growth, just curious.
Speaker Change: Where you see risk to that guy, obviously, there's a lot of uncertainty right now in the environment. We all understand that, but I guess curious how confident you are in that mid-single digit number, maybe some color around. [inaudible]
Speaker Change: What you're hearing from borrowers and how they're being impacted from a pull-through rate on the long roadside from tarot's right now.
Sir...Tom...
Speaker Change: Yeah, I was just going to dismiss Delie. It's going to let me answer if you wanted to, but the pipelines are softer on a year over your basis. If you look at them, you know, they're down about 10% in total. The short term, the good news is the short term pipeline has built a little bit and we've looked at it across the seventh state. [inaudible]
Speaker Change: Regent that we cover in the United States and as you know, we have...
Pretty heavy focus on manufacturing. [inaudible]
Speaker Change: within the Rust Belt States that we operate in. So we Gary spent quite a bit of time studying.
Speaker Change: The impact of tariffs on our customers. So we were able to gather quite a bit of feedback. We put a process in place where we collected data, divided the portfolio up into segments, and then focused on the higher risk of tariff clients. And there is a lot of uncertainty. Thank you.
Speaker Change: Obviously, around the tariffs and how it's going to impact them specifically, you could see a wide range of activities going on within the customer base, everything from some clients. [inaudible]
Utilizing their access liquidity to bring inventory.
Speaker Change: In so that they don't face supply chain disruption or substantial increases in cost initially. So you're seeing some of that, you see some borrowers cutting back.
Speaker Change: You know, canceling cat-backs, expansion plans because they're going to wait and see, you know, what's going to happen with the tax code and what's going to happen, you know, with the tariffs individually. So it's kind of a mixed bag and it's caused, I'd say a pause.
and Capital Investment, at least substantial capital investment.
Speaker Change: We expect that as we move through the next several months and hopefully resolve many of the issues associated with these tariffs, maybe not China, China might be a longer term issue. But we would expect demand to pick up in the second half of the year. [inaudible]
Speaker Change: And, you know, based upon the activity that we're seeing, you know, I think that is in the cards.
Speaker Change: You know, from a theory perspective, you know, theory is slower, you know, we have.
Intentionally pulled back a little bit.
Speaker Change: to let that normalize within the company. So we're still seeing quite a bit of activity in the secondary market there. I know Gary. Thank you.
Speaker Change: I don't know if you want to comment on it. Yeah, I mean, during the quarter, uh...
We reduced that portfolio another $283 million.
Speaker Change: And that's been pretty consistent. So, you know, there's good secondary market activities starting to show. And, you know, the projects are performing and they're moving, moving through the normal channels there. So that's, that's continuing. [inaudible]
Speaker Change: Continuing to move in a good direction as we manage that level down to a level that we desire it to be going forward as we cross the $50 billion level. Yeah, I think you're going to see, you know, we are.
Speaker Change: Probably an outsized proportion of large corporate investment-grade borrowers, right? Because we have the debt capital markets platform at least. [inaudible]
Speaker Change: We have products we can sell them to justify the returns. We're starting to see more utilization on those facilities. So, you know, there's a pickup there. So there's puts and takes, you know, as we move forward. But we're pretty confident, Dan, we're going to hit that guide that we put out there.
Speaker Change: And there's still quite a bit of activity across the flip from. We're very fortunate in that we have a very diverse.
Speaker Change: footprint. So we're off rely and don't want particular industry or one geography to generate asset growth. So, and that that's playing out for us. I think it'll do. I think it'll support our thesis on growth.
Speaker Change: Yeah, the guidance again is a spot to spot, right? So that I think that's important. And an underlying is you know mortgage activity picks up in the second and third quarter. So that's also a component of. [inaudible]
Speaker Change: kind of the mid single digits. But one of the things that I comment on too, just while one was maybe a little bit slow, giving us opportunity to continue to bring down deposit rates. You know, we had first.
Thank you.
Let's try the color. Appreciate all of that. I guess.
Maybe one for Prageri and...
Speaker Change: Anyone else who wants to chime in on credit, Gary talked about less than 5% of exposures at risk of greater impact on the direct tariffs, wondering if you could just go into a little more detail on what you were referring to there and then curious kind of how you're thinking about the potential impact of...
Speaker Change: of a recession on reserves looking back at where the coverage was in the pandemic. It looks like you were about 20 basis points higher. So I guess
Speaker Change: Just if that's about the good way to size it with Cecil now, that'd be helpful. Thanks.
Speaker Change: Yes, sure, Daniel. You know, we took a very proactive approach around the tariff situation.
Speaker Change: And naturally, there's a lot of uncertainty around it, specifically around how's it going to impact growth that Vincent was just referencing, reduce spending, higher inflation. And again,
Speaker Change: Potential Supply Chain Issues, so there's a lot of uncertainty out there, and will it drive the economy into a recession? I don't think any of us know the answer to that at the moment.
Speaker Change: Early in the year, we put a mandatory assessment around potential tariffs in our new underwritings.
Speaker Change: We identified the five sectors that we felt that would be most impacted in our C&I portfolio and we surveyed about 50% of the C&I exposure really across the company.
Speaker Change: As I mentioned in my prepared remarks, those clients went all the way down to $3 million in relationship and that low risk category was less than 5% of the book.
Speaker Change: in that bucket as well as in the higher end of that medium bucket of clients that we surveyed.
to manage the financial performance.
Speaker Change: Manage their margin, discuss with them the liquidity position they're in.
There could be on the reserve, if any. [inaudible]
Speaker Change: So we'll continue to manage that portfolio in that fashion with frequent touches.
with those clients. [inaudible]
Speaker Change: So, you know, just summing it up, it is a very fluid situation and I think we're well ahead of it and we'll manage any potential risks as the situation continues to evolve. In terms of reserves. In terms of reserves.
We did run our stress tests in a recessionary environment.
Speaker Change: Both inclusive of a severe recession, those reviews and those analysis are reflecting manageable builds from a reserve standpoint that we feel very comfortable with so really nothing.
Speaker Change: Nothing too alarming there from that standpoint and the portfolio at this point continues to perform in a very stable fashion. So we feel we're well positioned even with all the uncertainty that's in the in the environment today. .
Speaker Change: Yeah, I would just add to the, like the moderate recession scenario. I mean, I think you mentioned 20 basis points in COVID. I mean, our modest recession scenario is more like half of that.
Thank you. Bye-bye.
That's great, very helpful. Thanks for taking my question.
Thank you very much.
Speaker Change: Our next question comes from Casey Haire from Autonomous Research. Please go ahead with your question.
Good morning. This is Jackson Singleton on for Casey Haire.
Casey Hare: A couple quick ones for me. First, I wanted to pull up on expenses I know this was asked about, but...
Casey Hare: It looks like the 2Q quarterly expense guidance was brought down a bit from the 1Q quarterly guide, but the full year guidance was left unchanged, so I was just wondering if you can give any color on flex and expenses to where you can maybe bring that full year number down lower.
Casey Hare: Well, the 2Q level is reflective of the first quarter having about $16 million of seasonal expenses between long-term compensation payroll taxes.
Casey Hare: Restarting in Year 4-1-K kind of thing, so that's the Delta first.
1Q to 2Q is really just dripped by that.
Casey Hare: Okay, got it. And then if revenues come in any lower than expected, is there any flex to where he can bring expenses down?
Casey Hare: I mean, there's permissions in the centers that are tied to the revenue. So if the revenue is slower, obviously those numbers would be lower. As I mentioned earlier, we already have about 15 to 20 million dollar kind of cost savings. Goal baked into our our guidance overall, but definitely that piece of the expenses would flat down. [inaudible]
Casey Hare: Okay, got it great. And then for my follow-up. So most of the loan growth in 1Q looks like it came from the Rezzy mortgage book. Is this level, do you expect to be able to continue that throughout the year? Or will it subside a little bit? Or can you give any color on that?
Casey Hare: Yeah, I mean, the residential mortgage levels definitely picked up seasonally in the second and third quarters every year, so that'll kind of come through. If you look at the, I mentioned in my remarks, the CNI and leasing component kind of group mid single digits annualized in the first quarter commercial real estate that Gary mentioned was was down during the quarter. So, so those levels are kind of baked in. I mean, mortgages. Thank you.
Casey Hare: Probably 40% or so of the kind of net growth that you see in the lone portfolio as you go through the year. Thank you very much for your time.
Okay, got it. Thank you for taking my questions.
Work. Thank you.
Casey Hare: Our next question comes from Kelly Motta from KBW. Please go ahead with your question.
Hey, good morning. Thanks for the question.
Speaker Change: I made my way to turning to the B side of things. It was really nice to see those those hold in really nicely, even with kind of just the slow down in capital markets, which is really testament to what you're doing building out all these lines.
Speaker Change: Nice step up in the second half of the year. In order to get there, would that require capital market activity picking up or are there other re enshoots are working on that could help offset, you know, some continued weakness there if we kind of get that going on. [inaudible]
Speaker Change: Well, I think, you know, capital markets in the broader context of what we do is derivative, so derivative being comes directly linked to the interest rate environment.
Speaker Change: I would say that we've seen some pretty decent activity recently.
Speaker Change: So, you know, that's one area they could help contribute to doing better and non-interesting come. The other one. [inaudible]
Speaker Change: The other areas are we've expanded into commodities, hedging. That's relatively new. We just brought the investment banking boutique on board. They'll contribute a little bit this year. I mean, it's not. [inaudible]
Speaker Change: He Mungus, but it will contribute to the diversification it's additive. And then unlike other banks, large banks that rely mainly on investment banking and trading fees, we have syndications platform, I would use them back there in the latter half of the year to be more activity in that space. [inaudible]
Speaker Change: You know, and I do anticipate, you know, I'm going to go out and limp here. I'm anticipating an acceleration in an ACTIVITY in the middle market.
Speaker Change: You know, principally because of what's happening structurally within the country, you know, I think that there are a number of manufacturers that will look to combine or to acquire. [inaudible]
Speaker Change: You know, companies that may help them vertically and agree into the supply chain. So you might see, you know, an acceleration in middle market M&A, I would expect that to help us on a number of fronts with syndications, with derivatives, with, you know, as we finance the transaction. .
Speaker Change: and then you know the advisory business that we just picked up we should benefit from. Obviously there's downward pressure too I mean you if you look at our trust
You know, you'll see a lift.
Speaker Change: across the board, or some of the tariff issues being resolved.
Speaker Change: More expeditiously, that should impact the markets positively. So I think those things are why we're optimistic about the guide and. [inaudible]
Speaker Change: You know, we've consistently delivered the income. The other area that contributes to the income and clover for us is the mortgage business. And you know, we have always out before it.
The industry.
Speaker Change: Mattrix within that mortgage business. So it's predominantly a purchase money business. We built it out from scratch. You know, we have pretty decent market share in most of the major markets that we compete in. I know housing supply has been an issue, right, and more so than. [inaudible]
Speaker Change: Then demand, not right demand. You know, that may balance out. But I would expect that business to continue to perform or upperform the industry. They're very well managed. And, you know, our leadership there does a fantastic job.
Speaker Change: I would expect them to contribute. We have SBA, we have an SBA business that...
Speaker Change: You know, we'll see more activity from again on sale, perspective as we move forward. So we're positive about that. And then we've started to invest more heavily in our Treasury Management platform. Treasury Management also contributes to the the income line. We've seen some substantial growth. [inaudible]
Speaker Change: in the payments category and we're re-tooling and revamping a number of our products.
Speaker Change: on the TM side to help us, you know, move up, Mark Bitt.
There's our portfolio ships up market, so...
Speaker Change: Pretty excited about the opportunities there as well from a service charge perspective for Treasury Management Services that we provide.
Speaker Change: Anyway, that's so that you can see it's a pretty balanced...
Pools, a product that contributes and they're all high value products.
Speaker Change: So we're not really relying on consumer beast to drive anything. They're actually declining in certain categories. So, you know, having that. [inaudible]
Offering Billed Down
Speaker Change: and being able to continue. And I should bring up international banking too. I'm pretty excited given what's happening.
Speaker Change: There are opportunities for companies to hedge currencies. You'll see quite a wide range.
Speaker Change: of values change, changes within currencies in the exchange market because it was happening with the tariffs, so there's an opportunity for us to go out in the system, clients with hedging their foreign currency needs as well.
That's why we feel you're good about it. [inaudible]
That's super helpful. Thank you so much for that.
Speaker Change: Just to be straight, that's a lot different than relying on just trading activity and M&A advisory as our principal contributors. So, it's very grand.
Anyway, yep
Absolutely. I really do appreciate all the color there. [inaudible]
Speaker Change: On the deposit side, I think you did a really nice job bringing deposit costs down. And I also saw there's an EOP basis, the NIVs were up. It looks like that might have been the end of quarter. Can you just remind us any kind of dynamics that you're seeing?
Speaker Change: They're on demand accounts, as well as where the incremental cost of new funding is coming on relative to the overall deposit base. That would be very helpful.
Speaker Change: Well, I've been suggested that the worth of deposits are coming on relative to what we sit today. He has those statistics, I think. But I will say that, you know, Kelly, we just, we rolled out the common app digitally. [inaudible]
Speaker Change: You know, our strategy is clicks to bricks, which is to integrate, you know, the online experience into the branches. We are currently. You
that platform within the branches itself.
Speaker Change: so that we can originate loans and deposits in a paperless environment.
Speaker Change: and in a digital environment and the first base of this.
has happened and you know I've gotten pretty positive feedback.
Back from our park ranches that were...
in the beta experimental phase.
Speaker Change: and we're getting ready to roll that out pretty broadly. Within that application itself, the reason I'm bringing this up, is because we use AI, you know, we have a data base that we have trillions of fields of data on and we run. [inaudible]
Speaker Change: algorithms against that database and write software, machine learning and AI software that looks at customer behaviors and permits us to present products to customers to optimize the customer's experience.
Speaker Change: Right? So once we roll out that platform, those retail people will be able to, you know, get
Speaker Change: Centralized Advice on what's best for the client and they'll be able to recommend products and you can put them in the cart and proceed to check out without taking the client through any extra steps.
So I think that should help us.
in two ways, one in broadening
Speaker Change: The Household Penetration for Customer, and two, enabling us to bring on more clients for the primary.
A depository which drives demand deposits for us.
Speaker Change: I also think our strategy around primacy and making the investment in the Pidantec Atomic and
Speaker Change: creating the opportunity for customers to move direct deposit instantaneously is also removing a huge barrier to become the primary bank and that is embedded in our process and it's embedded in our mobile app.
Speaker Change: So that just rolled out March 31, so it's still pretty early to tell you how we're doing there. But I see a great opportunity there to drive deposit costs down by becoming the principal bank for small businesses. That's it, Vincent.
Vincent Calabrese: Consumer. Anyway, go ahead, Vince, do you have any information? Yeah, I could just add, I guess, a couple of things is regarding the kind of the special rates that we had last year. Remember, we were very focused on bringing down our wanted deposit ratio. Thank you, Joe.
Speaker Change: If we kind of looked at mid-year last year to where we are today and where you brought all those rates down between 150 basis points from kind of the peak levels. If you look at one of the big rolling pieces through is the CD obviously so you know we have. Yeah, that's it.
Speaker Change: 2.8 billion of those that are going to mature in the next quarter.
Speaker Change: 404, another two billion in the third quarter, I'd like a three seventy rate. I'd like a three seventy rate.
Thank you.
Speaker Change: You know, there's a pickup that happens there. And then if you just step back to look at kind of the ballot sheet overall, we have fixed rate maturities in the loan portfolio around two and a half billion kind of for the year.
Speaker Change: We're probably picking up somewhere between 170, 180 basis points on that. You have the annual cash flows from the investment portfolio. I mean, those are rolling off around the 320 level and we're investing, you know, in the high floors, mid to high floors, by high higher to higher end of that range. [inaudible]
Speaker Change: So that's kind of another key dynamic there. And then we have the balance sheet repricing slide. So, you know, there's kind of eight billion dollars of liabilities that are kind of repricible today. That is just part of us managing the overall balance sheet, but it gives you some field for the moving parts that are there. [inaudible]
and Gary Guerrieri. Thank you. Thank you.
Speaker Change: Got it. Thank you so much. I will step back. I really do appreciate all the colors today. Nice quarter. Let's try it. Let's keep it. Thanks, Kelly.
Our next question comes from Frank.
Schiraldi from Piper Sandler, please go ahead with your question.
Good morning. Follow up on on long growth.
Speaker Change: Gary talked about a pre and getting that in the right place, as you go through kind of the next threshold as a wise. I'm just curious if you can, you know, is there a. Yeah.
Speaker Change: A specific, you know, runoff portfolio at this point is there, you know, some timing, you, you know, a specific level you guys expect to get to or, you know, when do you assume getting back to growth in that portfolio. Yeah.
Speaker Change: Yeah, Frank, in terms of the positioning against the Capitol base, I mean, we're right now we're at 229%.
And, you know, our target, and we don't have a-
Speaker Change: By night measures, you know, drawn in the sand, but just call it 200%.
For example, give or take.
Speaker Change: That's going to put us at a level where we feel very comfortable and truthfully with a portfolio in the position of it today, we feel good with our levels where we sit.
Speaker Change: But the target is to get it to that 200% level. As we continue to grow the capital base, it allows us to continue to generate new assets. That's it.
Speaker Change: I think we'll be able to continue to generate the desired level of assets that we have in the plan.
Speaker Change: So, you know, that will offset some of some of the planned reduction.
from a capital perspective as we move forward. We're moving forward.
Speaker Change: I think the capital growth will be important.
Speaker Change: in allowing us to do the business we want to do and maintain it and get it to that level. Frank, to be clear there's no runoff portfolio. Like we're not we're not running. Frank Schiraldi, F.N.B. Corp.
Speaker Change: Customers out. You know, we basically underwrite to a takeout typically. So, you know, we tend to be a short-term player. So the volume on the origination side has been brought down because of really form background economic. [inaudible]
Speaker Change: issues, and basically those take-outs continue to happen. If we're in office, which isn't that frequent, it's usually suburban, it's usually lined up with at least.
Speaker Change: You know, high quality tenant that, you know, we're doing the construction financing force. So that book tends to move out and that market still liquid. We're going to do it.
Speaker Change: So we're seeing those assets roll out. We're not originating as strongly as we were historically.
Speaker Change: And the multi-family continues to move in the secondary market as well, and that really, that along with some office moving off the books in the corridor, really drove that $280 million that I referenced. [inaudible]
Speaker Change: We're really not a big retail player. Some people may want to worry about tariffs relative to retail tenants, right? If you're a big box, if you're financing big box retail, you know, we don't have.
Speaker Change: No, we don't. We're not supposed to be here, so we're not really there. I mean, we do have some grocery accurate retail. Yeah, outside of the grocery. Yeah, outside of grocery, it's it's pretty
Speaker Change: All right, and then just on the on the Tower of the Meet the
Speaker Change: the idea of kind of looking through the portfolio and seeing what's at risk. I'm just curious, you know, an obvious sort of area of expansion for you guys, just given the geography of where you are, is further into D.C. and northern Virginia. And just given, you know, some of the narrative around...
Governing
Speaker Change: Cuts and real estate in and around the BC area. Just curious if your thoughts have changed at all on that geography.
Speaker Change: or any other or strategy around the other geography here, it's given the recent volatility and uncertainty.
Speaker Change: Remember, there's a hole in the doughnut, right? And you can happen, like, so there's less density for us. I'm saying that's sarcophagus. People said that to me when we bought the bank in North Carolina, but there's less density in the Virginia and D.C. area for us.
Speaker Change: So, you know, while there's no going into those markets, we're not picking up legacy portfolios.
Speaker Change: We're very selective about what we do from a CRA perspective in those markets and from a consumer banking perspective, we are not heavily entrenched.
Speaker Change: in those areas. So we're not going to have as much exposure, you know, with government employees being laid off with government agencies cutting back having their their budgets cut, right? Whether it's going on the efficiency initiative that's going. [inaudible]
Speaker Change: So I, you know, we're less at this point. We're less susceptible to legacy issues. So I think it gives us an opportunity to come into the market a little more heavily, right? And pick up share because others will be forced to pull back.
Speaker Change: So, you know, the timing of our expansion into the donut hole is probably the right time, thank goodness. But Gary, do you want to talk about...
Gary Guerrieri: You know, our exposures there, I don't think they're material. No, they're really not material in that market in terms of in terms of the mortgage assets and consumer assets that we have there. Okay.
You know, we're monitoring those things on a weekly basis.
and those levels, those levels are right at above. [inaudible]
$3 billion about a billion nine in Maryland. [inaudible]
Gary Guerrieri: and about 900 million in that Virginia Marketplace all the way down into southern Virginia. So two-thirds of that people are sitting in Baltimore.
Gary Guerrieri: Just to be clear. Yes, that's correct. And so from that standpoint, it's heavy Baltimore. The DC market, it's got a couple hundred million dollars, right? It's very, very minimal.
Gary Guerrieri: So, those balances, we continue to watch them, as I mentioned, we're watching them weekly, and we have seen no change in asset quality across those books at this point.
Gary Guerrieri: So we'll continue to stay on top of that and see how that all plays out, but I'll told you know we feel it's very very manageable exposure and you know it's a market that you know it's temporarily being. [inaudible]
Gary Guerrieri: being hit from some of the government actions, you know, we think that that too show playing out.
Speaker Change: Right, that's okay. And then just lastly, if I could sneak in one more just, you know, given where, um,
The industry has gone in terms of bank stock prices.
Speaker Change: and given that you got strong capital levels and continue to create capital here even even putting up, you know, the mid single digit long roaches.
Speaker Change: Curious the potential, your thoughts on I know you bought back some in the quarter, but your thoughts on I'm ramping up the buy back here. Is that something, you know, can you possibly, if that's the case possibly size that a bit or is that just less of a priority here.
Speaker Change: Yeah, as you mentioned, Frank, I mean the capital ratios continue to move up as we had discussed previously.
Speaker Change: And you know, with the level of earnings that we're generating, count ratio, and that kind of bit to high 30s.
Speaker Change: You know, we would expect that to continue, you know, when the loan growth picks up in earnest.
at the Super Bowl.
Speaker Change: As you mentioned, we bought about $10 million worth of stock in the first quarter.
Speaker Change: Well, we thought we should pause for now, but kind of once we get a little bit more visibility in the dust settles. [inaudible]
Speaker Change: I mean, the stock's very cheap, right? I mean, from a valuation standpoint, no matter how you look at it. So, you know, we bought shares back in the mid-13s. I mean, where it is today, we would be very opportunistic once we feel better just about the visibility. [inaudible]
Speaker Change: with where the world's going. So there's we have plenty of authorization and are shared by that program as it sits here today. So, you know, opportunistic is always the way we approach it. But with valuation, definitely you would expect to see us be active as we go through the year.
Got it. Okay, thank you. Appreciate all the color.
All right. Thanks, Brian. Thanks, Brian.
Speaker Change: Once again, if you would like to ask a question, please press star and then one. To remove yourself from the question queue you may press star and two.
Speaker Change: Our next question comes from Manuel Navas from DA Davidson. Please go ahead with your question.
Manuel Navis: Hey, good morning. I appreciate it a lot of commentary, a lot of our questions have been answered, but I'm.
Manuel Navis: Can you quote a little bit deeper on the Raptor Partners Acquisition? What are the expected benefits and costs? And what else are you seeing out there in M&A for capital deployment? You talked about being opportunistic on buybacks, but just kind of what else are you seeing on the
Manuel Navis: Potential M&A front, fees, banks, what do you see out there?
Manuel Navis: Yeah, I mean, Raptor was, you know, a long time in the making, you know, we had a pretty tight-known grab for years, decades, so we both worked.
At the same investment bank years ago.
Manuel Navis: Different times, but we work for the same investment bank. You know, I think we picked up a tremendous person and people. A great team. They fit in culturally. They're going to be able to leverage the. [inaudible]
Manuel Navis: Basically, leverage the platform that we've built, and as we've grown and moved into upper middle market, large corporate, there presents many opportunities for them across a broader geography. So I think it's the perfect combination.
Manuel Navis: You couldn't find a better poor qualified person to help us build out that platform, which is what
has embarked on doing.
Manuel Navis: You know, so I'm very excited about having a mom board and having this part of our team. I've worked for them in the past on transactions on different sides. It's like...
Manuel Navis: You know, finance some companies that he had done some M&A work for, advisory work forces, just terrific guy.
Manuel Navis: So, I think that will vote well for us. And again, that's an alignment with our strategy to continue to build out our capabilities and support businesses throughout their life cycle and creates granularity within a non-interest income revenue generation basket.
You know, what we've shot for. [inaudible]
Manuel Navis: So we've over time, meanwhile we've expanded eight business lines that are now multi-million dollar revenue generators and they started very small, kind of like this opportunity, this is not a substantial impact to earnings, right? It's less than a penny I think.
Manuel Navis: But the reality is we'll be able to leverage that platform and continue to invest in it and grow it just like we've grown. The other businesses. Thank you.
Manuel Navis: We've put on the ground and started from square one and we've been able to achieve nearly a 9% to 10% growth rate.
Manuel Navis: on a compounded basis in that space in the non-understand Camaria. So this will be out of tip to that.
Manuel Navis: Sure, we would look for opportunities to add to our the income capability, so we just made a strategic investment in a fintech as well, which was very small, but that is also helping us.
Manuel Navis: Just based upon what they've enabled us to be able to do. From an M&A perspective, it's the same story. I think it becomes more challenging to get deals done in this environment, right? Because it is so. [inaudible]
Manuel Navis: Volatile, and the banks of Volsino, you know, a pullback on their share prices. You know, it makes it more challenging, but we're going to stay focused on, you know, what we've. [inaudible]
Manuel Navis: You know, done historically, which is in market with significant cost sales deals that are immediately accrued to earnings and had limited tangible hook value dilution.
Manuel Navis: And then we look for returns while above the cost of capital. It hasn't changed. It's the same story. We're also going to look at options. You know, we're going to look at different options for us to deploy capital, not just M&A. You know, look at the dividend. We'll look at share repurchase. [inaudible]
Manuel Navis: And as you've seen, our capital ratios have been improving steadily and are currently at record levels, so we've got to do things we couldn't do in the past.
Manuel Navis: So kind of everything's on the table. We're going to do whatever we think is absolutely best for the shareholders and the long term prospects for creating shareholder return.
. . . . .
[inaudible]
Speaker Change: I appreciate that the Fintech investment and that direct deposit capability, can you talk about the potential there? I know it's early any. If anyone else doing that and the potential for its impact on account primacy seems pretty strong. You just talk about all that kind of benefits that.
Speaker Change: Well I think there are ample banks that are doing this.
Speaker Change: You know, I work one of the first out there, we've embedded it into our mobile app and into our e-store, common application, the onboarding process, which makes it even more powerful. So, you know, the reality is what it does is it takes a barrier away. When you're out selling to a customer and you.
Speaker Change: are trying to get that customer to move their primary checking account to you. If they have to go through a ridiculous process to move direct deposit, they're never going to leave the bank that they have direct deposit established with. [inaudible]
Speaker Change: So in this process with a few simple steps, you can move the direct deposit instantly. They don't have to do anything to go through the app. There's a few simple steps.
And then, you know...
Speaker Change: is open. And actually, I don't know if Christian want to comment on it, he's here. Chris was the one that fit.
Really started looking at this opportunity. [inaudible]
Speaker Change: Yeah, no, there are a few banks using, like Ben said, Manuel, I think we're more unique is how we're implementing it and tying it into the account ongoing process, like Ben said and tying into relationship pricing. I think it becomes a very powerful tool for us to direct our primacy higher and. [inaudible]
Speaker Change: I think we're very excited about what the medium term will look like, and I know Vincent talked about the previous quarter, eventually adding the build switch feature as well, which we're actively working on and that will just continue to lower barriers and be able to drive primacy and hire and make that switch and cost lower for our consumers. If you're sitting in front of a customer and they come into the branch and they want a loan.
Product, you know, many times we say, we eat you <expletive> .
Speaker Change: You should open a check-in account because we can give you bundled.
Speaker Change: Pricing, and then you get direct debit, and it's better for us, and it's better for them. And then they open an account, and they don't move their principles.
Speaker Change: This first-minute account over, they open another account just to move money into to make the loan payment. That's not what we're really looking for.
What we're looking for is to become the primary bank. [inaudible]
Speaker Change: So, everything that we've done digitally is to enable customers to come into the bank.
Speaker Change: Choose the right products and services with the help assist of AI and our common applications. They have to fill out redundant fields. Move their direct deposit immediately. Move their repetitive ACH transactions. .
Speaker Change: and their bill pay instantly and just move on. If we can do that, we're eliminating barriers that exist today, structural barriers, that prevent people from moving their deposit relationships to us. [inaudible]
So that's what we're focused on.
Speaker Change: They did it in that show and they help us get there and I think it was a great opportunity and I predicate Chris with coming to the table with the idea and being the champion to get it done here.
I appreciate the color. Thank you.
Thank you. Thanks, everyone.
Speaker Change: And ladies and gentlemen, with that, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Vince Delie for any closing remarks.
Vince Delie: Well again, thank you very much. I appreciate everybody's interest in the call. The questions were great. You know, we had a very solid quarter. We're looking forward to outperforming throughout the year. Everybody's keenly focused on doing the absolute best we can. Thank you very much.
Vince Delie: for the shareholders. And, you know, I just want everybody to know that. And I appreciate the work our employees do. They're engaged. They're passionate, like I said. You know, it makes it easy to get recognition when you have great people around you. And that's what I have. So thank you, everybody. Appreciate it.
Take care.
Speaker Change: 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.